HOW 

TO  FINANCE 
A  BUSINESS 


202  METHODS  OF  RAISING 
CAPITAL  &  USING  CREDIT 
TO  DEVELOP  A  BUSINESS 


GIFT  OF 
Mrs.   Berton  Einstein 


HOW  TO 

FINANCE  A 
BUSINESS 

WHERE  AND  HOW  TO  GET  FUNDS 
—HOW  TO  USE  THE  BANK— PARTNER- 
SHIPS AND  STOCK  ISSUES— SUCCESS  FROM 
SMALL  CAPITAL— FINANCING  IN  A 
CRISIS— HANDLING  INVESTMENTS 
—MONEY  LEAKS  AND  SAVINGS 
—PLANNING  TO  MAKE 
ENDS    MEET 


202  PROVED  METHODS 
OF  RAISING  CAPITA!, 
AND  USING  CREDIT 


A.  W.  SHAW  COMPANY 

CHICAGO          NEW  YORK 

A.  W.  SHAW  COMPANY,  .Ltd.,  LONDON 

191J 


Hh 


How 
How 
How 
How 
How 
How 
How 
How 
How 
How 
How 
How 
How 
How 
How 
How 


THE  MAGAZINE  OF  BUSINESS 

OTHER  "HOW- BOOKS" 

TO  INCREASE  YODR  SALES 

TO  INCREASE  A  BANK'S  DEPOSITS 

TO  SYSTEMATIZE  THE  DAY'S  WORK 

TO  GET  MORE  OUT  OF  YOUR  FACTORY 

TO  INCREASE  THE  SALES  OF  A  STORK 

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SCIENTIFIC  MANAGEMENT  is  APPLIED 

TO  SELL  OFFICE  APPLIANCES  AND  SUPPLIES 

TO  GET  MORE  POWER  FROM  COAL 

TO  COLLECT  MONEY  BY  MAIL 

TO  FINANCE  A  BUSINESS' 

Others  in  Preparation 


BUSINESS  MAN'S  ENCYCLOPEDIA 
(Two  Volumes) 

BUSINESS  MAN'S  LIBRAPvY 
^Ten  Volumes) 


BUSINESS  LAW  LIBRARY 

(Five  Volumes) 

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(Ten  Units — Thirty  Volumes) 

In  Preparation 


THE  MAGAZINE  OF  MANAGEMENT 


COPYRIGHT,  1912,  BY 
A.  W.  SHAW  COMPANY 


CONTENTS 


PART  I 
WHERE  TO  GO  FOR  MONEY 

Where  and  How  to  Borrow 

CHAPTER  PACK 

I    CHOOSING  SOURCES  AND  APPRAISING  CHANCES 

TO  GET  FUNDS 7 

II    WHEN  TO  APPLY  TO  THE  BANK 16 

III  How  TO  NEGOTIATE  A  BANK  LOAN 23 

IV  GETTING  AID  WHERE  You  BUY «  SO 

V    TAKING  IN  CAPITAL » 37 

PART  II 
HOW  TO  SATISFY  THE  LENDER 

What  is  Credit? 

VI  FINANCING  ON  REAL  AND  PERSONAL  PROPERTY  ...  -  47 
VII  POINTS  THAT  WIN  THE  BANKER  AND  CREDIT  MAN  ...  54 
VIII  How  TO  BUILD  A  REPUTATION  THAT  ASSURES  CREDIT  .  .  61 

PART  HI 
EMERGENCY  METHODS  OF  FINANCING 

Resources  That  Count  in  Tight  Places 

IX  BUILDING  A  BUSINESS  ON  THREE  FIGURES 69 

X  HANDLING  FINANCES  IN  A  PINCH 76 

XI  How  TO  MAKE  A  FRESH  START  AFTER  FAILURE  ....  82 

XII  DON'TS  IN  MONEY  MATTERS 89 


4  CONTENTS 

PART  IV 
HOW  TO  MAKE  THE  MOST  OF  YOUR  CAPITAL 

Keeping  Money  at  Work 

CHAPTER  PAGE 

XIII  PLANNING  TO  MEET  YOUR  BILLS 97 

XIV  KEEPING  EXTRA  MONET  BUSY 103 

XV    HANDLING  RESERVES  AND  INVESTMENTS 109 

XVI    WHERE  TO  LOOK  FOR  LEAKS  AND  SAVINGS  .    .         .    .    115 
XVII    CHECKING  UP  AND  MAKING  FINANCIAL  FORECASTS    ,    •    120 


LIST   OF   FINANCIAL   CHARTS 

CHAJLT  PAGE 

I      HOW  TO   RAISE   MONEY 6 

II      WHEN   TO   USE  THE    BANK 17 

III  BUSINESS   FACTORS   UNDERLYING   SUPPLY   HOUSE 

CREDIT          33 

IV  FACTORS  THAT   ESTABLISH   FINANCIAL  CONFIDENCE      ...  46 
V      PERSONALITY   FACTORS   UNDERLYING    CREDIT 59 

VI      HOW  TO   BUILD   A   CREDIT   REPUTATION 65 

VII      HOW  TO   FINANCE   IN   EMERGENCIES 68 

VIII      KEEPING   THE   MONEY   BALANCE   EVEN 97 

IX      GRAPHIC   RECORD   OF  FACTORY   PROFITS 127 


•Si 


Part  I 


WHERE  TO  GO  FOR  MONEY 


Where  and  How  to  Borrow 

MONEY  —  or  the  use  of  money  —  is  bought  and  sold 
like  flour  or  cutlery.  If  you  recognize  that  it  is 
credit  which  enables  you  to  buy  money  —  if  you  make  the 
lender  secure  of  payment  —  you  can  purchase  whatever 
funds  you  need. 

To  do  so,  however,  requires  expert  purchasing  ability. 

Money  service  is  not  always  the  same  either  in  quality 
or  in  price.  Money  markets  vary.  Credit  —  which  is 
the  assurance  of  repayment  you  give  —  means  different 
things  in  different  markets. 

If  you  want  a  loan  payable  at  will  rather  than  on  call, 
the  price  of  your  accommodation  will  be  higher.  If  the 
available  money  supply  is  low,  or  if  your  loan  involves  an 
unusual  chance  of  loss,  you  must  pay  better.  If  you 
borrow  more  than  you  need  —  that  is,  if  you  overbuy 
money  —  your  holdings  depreciate  day  and  night  at  your 
interest  rate.  If  you  underbuy,  you  may  be  unable  to 
meet  a  vital  cash  demand. 

Financing  a  business  means  expertness  in  buying,  in 
selling,  in  using  funds.  It  means  establishing  credit,  stop- 
ing  losses,  coming  through  the  pinch  by  sheer  resource- 
fulness and  "making  both  ends  meet"  in  steady  profits. 

Men  who  finance  store,  factory  and  professional  service 
with  success  first  know  their  own  condition  exactly;  then 
check  over  those  who  sell  funds  and  apply  to  such  sources 
as  offer  precisely  what  they  need.  They  go  to  the  best 
money  market  with  carefully  prepared  purchasing  power 
and  buy  with  expert  foresight  precisely  those  funds  in 
amount  and  in  terms  which  the  business  needs. 


ait  '  io» 


fflIC 


these  offerings  may  interest 


BIB: 


CHAPTER  I 

Choosing  Sources  and  Appraising 
Chances  to  Get  Funds 

HAND  to  mouth  financing  recently  caused  the  failure 
of  a  large  department  store  in  a  city  of  the  middle 
west.  The  store  was  well  located  and  the  capital  should 
have  been  sufficient.  At  the  start  there  was  little  compe- 
tition and  the  business  prospered. 

The  prosperity,  however,  was  brief.  The  owner  of  the 
store  concentrated  his  attention  on  selling  and  buying. 
He  ignored  credit.  He  paid  all  small  bills  upon  their' 
presentation  at  the  cashier's  window,  larger  bills  upon 
receipt  of  invoice.  He  took  no  measures  to  keep  idle 
funds  active;  he  did  not  try  to  establish  a  reputation 
among  bankers  and  moneyed  men;  he  adopted  no  plan 
to  equalize  his  supply  of  capital  with  demand.  x 

At  length  the  business  required  a  new  building.  The 
younger  members  of  the  firm  advised  establishing  their 
credit  and  borrowing  the  money  they  needed.  A  new 
competitor  had  entered  the  field  and  was  making  exten- 
sive improvements.  One  of  the  merchant's  sons,  exas- 
perated by  this  move,  spoke  to  his,  father. 

"See  here,"  he  said.  "We're  behind  time.  Take 
the  railways,  the  sky-scrapers — all  the  great  industrial 
works  for  that  matter.  Could  they  have  been  built  up 


8  .      WIJERE  TO  GO  FOR  MONEY 

by  following  our  method?  Do  they  keep  their  capital 
idle  while  waiting  for  it  to  grow?  Why  not  borrow  this 
money  for  the  new  building?  We  may  be  obliged  to 
ask  for  credit  some  day  to  carry  on  our  business.  It  is 
better  to  establish  it  now  while  we  can." 

The  senior  member  of  the  firm,  however,  was  obdurate. 
He  would  do  nothing  until  he  had  accumulated  a  surplus 
sufficient  to  cover  the  expenses  of  the  improvement, 
though  he  admitted  that  lack  of  space  was  a  handicap. 

The  first  two  years  the  firm  managed  to  build  up  a 
considerable  surplus.  This  money  was  kept  in  a  savings 
bank,  drawing  3%  interest.  The  third  year,  however, 
the  competition  had  so  grown  that  no  surplus  was 
earned.  The  fourth  year  began  with  a  general  busi- 
ness depression.  The  balance  in  the  bank  sank.  Still 
the  old  policy  was  continued. 

What  was  the  result  ?  The  owner  of  the  business  had 
never  been  well  known  personally  in  financial  circles. 
Instead  of  inspiring  confidence,  his  plan  had  had  the 
opposite  effect.  Business  houses  had  concluded  that  he 
was  obliged  to  pay  cash — they  came  to  demand  cash  on 
delivery.  When  the  slump  came  the  merchant  tried  to 
establish  credit,  but  he  had  waited  too  long.  He  found 
himself  a  novice  in  financing.  He  did  not  know  how  to 
use  to  advantage  the  securities  he  possessed.  He  had 
formed  a  poor  reputation  for  business  acumen  and  was 
unable  to  secure  sufficient  credit.  Although  solvent, 
the  firm  was  compelled  to  liquidate. 

The  failure  of  this  merchant  was  due  largely  to  need- 
less ignorance  of  financing.  He  failed  (1)  to  establish 
credit;  (2)  to  make  use  of  idle  funds;  (3)  to  provide 
for  a  stringency;  (4)  to  make  the  most  of  his  tangible 
and  intangible  assets,  and  (5)  to  arrange  to  take  ad- 
vantage of  business  opportunities. 


SOURCES  OF  FUNDS  9 

The  success  of  your  business  is  closely  connected  with  • 
your  methods  of  financing.     The  value  of  capital  de-  \ 
pends  upon  the  use  you  make  of  it.     Your  ability  to  I 
expand  your  business,  to  take  advantage  of  opportuni- 
ties and  meet  able  competition — to  save  your  business 
in  time  of  financial  distress — is  largely  dependent  upon 
how  you  use  your  resources. 

In  the  building,  the  maintenance  and  the  expansion 
of  a  business  finance  is  a  two-edged  tool.  In  skillful 
hands  it  becomes,  like  clever  selling,  wise  buying  or  the 
ability  to  handle  employees,  a  chief  factor  in  the  suc- 
cess of  the  manufacturer,  the  wholesaler  and  the  man 
who  measures  dry  goods  or  weighs  sugar  for  neighbor- 
hood trade.  Awkwardly  used,  it  undermines  the  very 
foundations  of  a  business;  and  failure  may  follow  fail- 
ure until  the  executive  learns  the  lesson  of  where  to 
look  for  money  to  suit  various  needs ;  how  to  attract  the 
investor  and  satisfy  the  lender;  how  to  swing  the  force 
of  his  personal  ingenuity  into  the  breach  when  a  crisis 
develops,  and  how  finally  to  gain  a  sure  position 
through  records  that  forecast  future  receipts  and  ex- 
penditures so  that  his  business,  like  a  well-ballasted  ship, 
automatically  maintains  an  equilibrium  of  cash  supply 
and  demand. 

The  first  problem  in  financing  a  business,  is  to  get  the 
capital.  And  wherever  you  may  look  your  chances  to 
secure  money  depend  solely  upon  the  confidence  that 
you  can  inspire.  It  is  confidence  that  determines  the 
banker  to  grant  you  a  loan;  confidence  that  influences 
the  supply  house  credit  man  to  extend  you  a  line  of 
credit;  confidence  that  attracts  the  partner  and  makes 
possible  the  stock  issue;  confidence  that  secures  you 
loans  from  private  investors.  Analyzed,  confidence  de- 
pends upon  the  answer  to  these  questions: 


10  WHERE  TO  GO  FOR  MONEY 

From  the  point  of  view  of  the  lender :  Can  you  and 
mil  you  pay  back  the  loan  when  due  ?  From  the  point 
of  view  of  the  partner  or  the  investor:  Can  you,  as 
the  chief  personal  element  in  your  proposition,  be  relied 
upon  absolutely,  and  does  your  business  judgment  war- 
rant trust  ? 

The  factors  which  determine  this  essential  element  of 
confidence,  or,  in  other  words,  the  factors  which  de- 
termine your  chances  to  get  capital,  are : 

1.  Your  personality. 

2.  Your  assets. 

3.  Your  proposition. 

The  Money  Value  of  Personality  in  Securing  Capi- 
tal for  Your  Business 

One  of  the  greatest  resources  is  personality — personal 
power  to  inspire  confidence.  By  that  is  meant  not  only 
appearance  and  presence,  but  character  and  ability. 

Commercial   bankers   are   almost  unanimous  in   con- 
sidering personality  as  the  greatest  of  credit  factors. 
Banks  will  not  deal  with  anyone  whom   they  cannot 
trust  for  honesty,  integrity  and  ability.    These  qualities 
the  bank  considers  its  most  important  safeguard.     In 
gathering  material  for  its  reports,  a  well-known  credit 
reporting  agency  grades  credit  requisites  like  this : 
Ability — relatively  essential. 
Integrity — absolutely  essential. 
Property — not  necessarily  so. 

In  appraising  your  chances  to  get  capital,  therefore, 
consider  first  the  credit  value  of  your  personality.  Have 
you  a  good  reputation  in  your  community,  especially 
with  bankers  and  moneyed  men?  If  so,  you  can  bor- 
row on  it.  Have  you  a  reputation  for  honesty  and  abil- 
ity? A  soap  manufacturer  was  offered  $5,000,000  for 


SOURCES  OF  FUNDS  11 

the  name  only  of  his  product — your  name  has  value, 
too,  if  it  stands  for  the  right  qualities. 

Your  chances  to  get  capital  depend,  in  the  second 
place,  upon  your  tangible  assets.  The  confidence  which 
really  counts  with  bankers  and  money  lenders  is  con- 
fidence in  your  ability  as  well  as  your  honest  determina- 
tion to  pay  back  a  loan  when  due,  and  this  depends 
to  a  large  extent  upon  the  amount  and  character  of 
your  tangible  assets. 

High-grade  real  estate  is  one  of  the  best  securities — 
you  can  always  obtain  a  loan  upon  it.  Government, 
state,  municipal  and  some  public  utility  bonds  are 
always  accepted.  You  can  raise  money  on  life  insur- 
ance, on  household  furniture.  But  the  value  of  your 
assets  from  a  loaning  viewpoint  depends  upon  how 
readily  they  may  be  converted  into  cash. .  A  patent  that 
has  never  been  proved  a  success  is  of  little  value  as  col- 
lateral— it  could  not  be  sold  readily.  Special  machinery 
is  of  little  value  for  the  same  reason. 

How  the  Strength  of  a  Business  Proposition  Can  Be 
Made  the  Basis  for  Securing  Capital 

The  third  factor  which  determines  your  chances  to 
get  capital  is  the  nature  of  your  business  proposition. 
Is  your  enterprise  based  upon  a  new  invention  or  an 
untried  scheme,  or  does  it  involve  no  new  principle? 
Is  the  risk  great  ?  Do  the  chances  for  profit  warrant  the 
risk?  These  are  some  of  the  points  which  will  deter- 
mine the  amount  of  capital  you  can  raise  on  your  plan. 

In  new  enterprises  which  are  not  entirely  based  upon 
untried  schemes  the  great  difficulty  comes  from  the  ex- 
isting competition.  Where  the  field  is  covered,  unless 
your  proposition  includes  an  exclusive  feature  which 
will  overcome  the  advantage  of  long  establishment,  your 


12  WHERE  TO  GO  FOR  MONEY 

chances  for  ultimate  success  are  considerably  reduced, 
and  the  capital  is  correspondingly  hard  to  secure.  The 
propositions  which  have  the  best  chance  to  secure  back- 
ing are  those  that  supply  a  want  widely  and  generally 
felt. 

The  old  complaint,  "It  takes  money  to  get  money/' 
and  "I  never  had  a  chance,"  make  up  a  refrain  that 
is  sung  by  a  large  chorus  of  failures.  But  money  is 
waiting  for  investment.  The  general  principle  is  sound : 
It  can  be  raised  for  any  business  capable  of  creating 
profit. 

The  burden  of  proof,  however,  is  upon  you.  If  you 
have  a  proposition  of  merit,  you  must  show  that  it  has 
merit.  You  must  plan,  study  your  business  and  take  an 
active  personal  part  in  securing  the  confidence  that  alone 
will  insure  success. 

While  your  chances  to  obtain  capital  depend  upon 
the  confidence  your  personality,  your  tangible  assets 
and  your  proposition  inspire,  you  must  present  these 
factors  in  the  right  way  and  to  the  right  sources.  It 
is  here  that  personal  resourcefulness  becomes  a  factor 
in  securing  capital. 

The  business  of  a  small  foundryman  had  not  pro- 
gressed far  before  large  competitors  brought  pressure  to 
bear  on  his  suppliers  of  raw  materials  to  force  him 
out  of  the  field.  Prices  were  raised  and  his  cost  of  pro- 
duction became  so  high  that  his  business  existence  was 
threatened.  To  put  his  business  on  an  independent  basis 
he  ordered  new  machinery,  depending  upon  a  loan  of 
five  hundred  dollars  to  which  the  banker  had  agreed. 
A  few  days  after  he  had  placed  his  order,  however,  he 
was  informed  that  on  account  of  a  financial  flurry  his 
banker  had  been  forced  to  refuse  the  loan. 

The  manufacturer  returned  to  his  office  discouraged. 


SOURCES  OF  FUNDS  13 

doa't  get  the  loan,"  he  said,  "and  the  payroll 
is  about  due." 

The  office  conference  lasted  for  some  time.  Suddenly 
the  gloom  OH  the  manufacturer's  face  disappeared. 
"Here,"  he  said,  taking  his  hat,  "we've  got  our  busi- 
ness at  least — our  being  established  is  an  asset.  I  won't 
be  back  until  I  have  raised  five  hundred  dollars." 

He  went  to  an  old  manufacturer  of  farm  implements 
who  used  his  product ;  secured  a  generous  contract  and 
requested  that  his  customer  advance  five  hundred  dol- 
lars as  a  guarantee.  He  presented  his  proposition  in 
such  a  way  that  the  advance  seemed  a  matter  of 
course;  the  opulent  customer  signed  the  check  without 
question. 

When  regular  methods  of  raising  capital  fail,  the  real 
test  comes.  Resourcefulness  is  only  another  word  for 
insight — seeing  exactly  what  assets  in  any  form  you  have 
and  using  them  to  the  best  possible  advantage. 

How  Close  Financing  together  with   Good  Manage- 
ment Built  up  a  Successful  Business 

Two  printers  in  an  Iowa  town  who  had  decided  to 
take  over  a  plant  got  together  one  evening  to  figure 
out  how  to  raise  the  necessary  money.  Every  conceiv- 
able avenue  of  financing  their  plant  was  discussed,  item 
by  item ;  material  resources,  loans  and  investments. 

Fredericks  had  a  house  and  lot  worth  three  thousand 
dollars,  mortgaged  for  one  thousand  dollars.  Barnes 
had  several  influential  friends  he  thought  might  con- 
sent to  a  loan,  some  stock  in  a  doubtful  proposition  and 
his  life  insurance.  Together  they  had  six  hundred  dol- 
lars in  cash. 

The  first  suggestion,  an  issue  of  stock,  involved  the 
probable  interference  of  stockholders,  and  furthermore 


14  WHERE  TO  GO  FOR  MONEY 

they  saw  that  it  would  be  as  easy  to  secure  outright 
lenders  as  investors.  They  could  get  no  initial  help 
from  supply  houses  because  the  plant  was  already 
equipped  and  the  owner  demanded  cash.  A  moneyed 
partner  offered  nearly  the  same  objections  as  a  stock 
issue.  Finally  they  decided  that  to  borrow  on  all  their 
available  resources  would  almost  finance  the  enterprise. 
They  did  this: 

Fredericks  raised: 

On  house  and  lot,  by  second  mortgage  .  .  $  800.00 

On  household  effects 200.00 

Cash 400.00 

$1,400.00 
Barnes  raised: 

From  a  friend,  on  personal  note $  500.00 

On  his  life  insurance     300.00 

On  his  $1,000  unlisted  stock 200.00 

Cash 400.00 

$1,400.00 

Two  thousand  eight  hundred  dollars  was  the  total 
amount  they  were  thus  able  to  raise.  They  needed  three 
thousand  two  hundred  dollars  to  buy  out  the  plant,  and 
an  additional  five  hundred  dollars  for  other  expenses. 
They  worked  together  now,  and  fortunately  they  had 
begun  to  plan  far  enough  ahead  so  that  there  was  still 
time  to  proceed  with  caution.  A  partner  was  the  only 
recourse.  First,  they  canvassed  among  their  friends. 
Those  who  had  money,  however,  had  already  been 
drawn  upon  for  loans.  As  a  last  resort  they  advertised 
for  another  investor.  From  among  those  who  replied 
they  found  one  man  who  consented  to  put  $700  into  the 
business  and  remain  a  silent  partner.  He  had  been 
watching  the  records  of  the  printers  and  was  satisfied 
that  he  was  making  a  good  investment. 


SOURCES  OF  FUNDS  15 

This  amount  raised  their  capital  to  three  thousand 
five  hundred  dollars.  They  still  needed  two  hundred. 
This  was  for  a  part  of  the  running  expense.  To  cover 
this  amount  they  solicited  work  in  advance.  The  owner 
of  the  building  where  the  plant  was  situated  gave  an 
order  for  work  which  he  accepted  in  payment  of  the 
rent,  and  other  minor  expenses  were  met  in  the  same 
way. 

The  insight  of  the  two  printers  in  financing  under  dif- 
ficulties suggests  the  three  vital  things  in  getting  money 
for  your  business:  (1)  Appraising  without  bias  and 
listing  in  order  of  preference  all  those  resources,  per- 
sonal and  material,  upon  which  you  can  raise  money; 
(2)  finding  the  one  best  market  for  each  resource  and 
getting  the  largest  return  from  it;  (3)  making  every 
subsequent  financial  step  so  business-like  and  clean-cut 
as  to  spell  financial  progress  and  improved  standing  in 
money  markets. 

First  of  all  must  come  the  personal  appraisal  of  your 
resources.  Have  you  known  ability,  a  good  reputation, 
a  record  to  stand  upon?  Have  you  assets  that  insure 
your  ability  to  pay  back  what  is  loaned  you?  Have 
you  a  proposition  that  offers  a  sure  chance  for  profit, 
or  one  in  which  the  chances  for  profit  warrant  the  riskT 

In  this  analysis  you  will  find  guidance  in  securing 
money.  With  this  start  it  remains  only  to  study,  to 
train  yourself  in  money  matters,  to  look  ahead  and  to 
foresee  your  needs,  in  order  to  meet  most  financial  crises 
successfully. 


CHAPTER  II 
When  to  Apply  to  the  Bank 

WHEN  does  the  bank  say  'No'? 
This  question  was  put  to  the  president  of  a 
large  bank  in  Chicago.     He  reclined  in  his  chair. 

"Never,  when  the  bank  can  help  it,"  he  replied. 

The  popular  idea  that  you  can  get  money  from  the 
bank  only  when  you  do  not  need  it  and  that  your 
chances  of  getting  a  loan  vary  in  direct  proportion  to 
your  ability  to  get  along  without  it  prevails  because 
the  nature  of  banking  operations  is  not  generally  under- 
stood. If  the  banker  refuses  accommodation,  it  is  be- 
cause his  interests  demand  it.  The  bank's  acommoda- 
tion  is  special  accommodation.  You  would  not  go  to  an 
oculist  for  an  operation  for  appendicitis — tnere  are 
times  when  to  go  to  the  bank  is  equally  absurd. 

Bankers  are  no  longer  private  money  lenders,  risking 
their  personal  capital  upon  loans  in  which  favor  plays 
a  part.  To  use  the  words  of  the  financier  quoted  above, 
a  banker  is  "a  merchant,  absolutely  and  precisely  a 
merchant/'  The  "use  of  money,"  or  credit,  is  a  mer- 
chantable commodity.  The  banker  buys  credit  and  sells 
it  at  a  profit.  To  be  successful,  he  must  keep  turning 
over  his  stock,  just  as  the  shoe  dealer  must  turn  his. 
The  man  who  comes  for  a  loan  is  a  prospective  buyer. 

16 


WHEN  TO  USE  THE  BANK 


17 


Remember,  it  is  not  money  that  the  banker  sells, 
but  the  use  of  it.  This  distinction  is  important.  The 
banker  sells  the  use  of  money  in  precisely  the  same 
way  that  a  liveryman  sells  the  use  of  a  horse.  The  first 
question  either  asks  is  whether  or  not  he  is  sure  of  get- 
ting back  what  he  loans.  If  you  go  to  a  livery  stable 
for  a  horse  to  explore  an  unknown  mountain  district, 
full  of  dangerous  precipices,  whatever  the  glory  of  the 
adventure,  you  will  be  told  to  go  elsewhere  to  procure 
your  mount.  If  you  go  to  a  banker  with  a  proposition 
involving  equally  unknown  and  hazardous  steps  the  an- 
swer will  be  the  same. 


Bank  credit  properly  has  a  well-defined  place  in  business,  hingeing  upon  quick  return 
secured  by  quick  assets.     Correct  and  incorrect  uses  of  bank  credit,  together  with  mis- 
cellaneous bank  services,  are  here  indicated 

Likewise,  neither  a  liveryman  nor  a  banker  would 
care  to  sell  the  use  of  a  commodity  for  a  period  that 
would  endanger  his  business.  A  liveryman  by  loaning 


18  WHERE  TO  GO  FOB  MONEY 

a  large  part  of  his  stock  for  a  long  time  to  one  person 
would  risk  being  unable  to  meet  the  regular  demands 
of  his  trade.  The  final  result  would  be  a  loss.  The 
situation  in  a  bank  is  similar,  except  that  the  necessity 
for  restrictions  of  this  kind  is  much  greater. 

The  depositors  of  a  commercial  bank  have  the  first 
claims  upon  it.  The  individuality  of  the  loans  and 
deposits  in  a  bank  is  constantly  changing.  One  man's 
deposit  is  high  this  month  and  he  is  borrowing  nothing; 
next  month  his  deposit  may  be  low  and  he  be  a  heavy 
borrower.  The  banker  must  first  of  all  provide  for 
these  shifting  requirements  of  his  many  regular  cus- 
tomers. 

When  you  go  to  the  bank,  therefore,  you  must  be 
able  to  convince  the  banker  that  you  can  pay  back  your 
loan,  and  that  it  will  be  outstanding  only  a  short  time. 
Your  ability  to  do  this,  especially  if  you  are  not  well 
known  and  a  regular  depositor,  hinges,  to  a  large  extent, 
upon  your  quick  assets. 

Quick  assets  are  those  which  can  be  turned  into  cash 
in  the  ordinary  course  of  business.  They  include,  in 
addition  to  actual  cash,  good  accounts  receivable,  good 
bills  receivable,  and  marketable  securities  held  for  in- 
vestment, which  are  not  a  part  of  the  fixed  assets.  To 
these  items  are  usually  added  inventories.  Quick  assets 
are  those  for  which  there  is  a  continual  market — those 
which  can  be  converted  into  cash  without  great  incon- 
venience at  any  time. 

When  you  go  to  the  bank  for  a  loan  you  should  have 
evidence  that  your  quick  assets  exceed  quick  liabilities. 
As  a  general  rule,  you  should  possess  two  dollars  or 
more  of  quick  assets  to  one  of  quick  liabilities.  The 
basis  of  a  bank  loan  is  a  volume  of  quick  assets  sufficient 
to  take  up  the  loan  and  to  leave  enough  surplus  quick 


WHEN  TO  USE  THE  BANK  19 

assets  to  protect  your  business.  The  bank  insists  upon 
protection  for  itself  and  you. 

A  member  of  a  corporation  that  had  just  completed 
its  factory  organization  went  to  the  bank  for  a  loan  to 
organize  the  sales  department. 

He  showed  the  following  assets: 

Machinery ,  .  .  $10,000 

Drawings,  etc 5,000 

Patents 8.000 

$23,000 

The  banker  glanced  at  the  statement. 

"Do  you  know  how  much  all  that  is  worth  from  our 
point  of  view?"  he  asked;  "just  the  junk  value  of  the 
machinery,  which  is  practically  nothing." 

If  the  applicant  for  the  loan  had  understood  the  na^ 
ture  of  banking  operations,  he  would  have  sought  his 
loan  from  another  source  or  presented  other  and  better 
claims  for  it. 

Presenting   a   Business   Proposition   as   a  Necessary 
Basis  for  Bank  Accommodations 

When  you  go  to  the  bank  for  a  loan,  you  should  have 
a  business  proposition.  You  must  be  able  to  show  that 
the  money  you  need  will  be  so  used  that  it  will  bring 
quick  and  profitable  returns.  Do  you  want  a  loan  to 
pay  other  creditors?  to  make  permanent  improvements? 
to  sustain  a  failing  business?  Or  have  you  a  definite 
proposition  that  offers  a  chance  for  profit  and  will  con- 
vince the  banker  of  your  ability  to  pay  the  loan  when 
due?  Put  these  questions  to  yourself  candidly.  Base 
your  answers  on  the  best  information,  advice  and  state- 
ments to  be  had.  If  you  want  the  use  of  a  banker's 
money,  you  must  be  able  to  show  that  you  will  get  back 
the  money  you  use,  quickly  and  at  a  profit.  It  is  his 
assurance  that  he  will  get  it  back. 


20  WHERE  TO  GO  FOR  MONEY 

Keen  business  men  do  not  expect  the  banker  to  fur- 
nish any  part  of  the  fixed  capital  of  an  enterprise.  That 
is  either  paid  in  by  the  owners  or  obtained  by  long  time 
loans  or  bond  issues  from  private  investors. 

The  owner  of  a  Pennsylvania  stone  quarry  needed 
more  capital  for  the  period  necessary  to  put  his  busi- 
ness on  a  paying-  basis.  He  went  to  the  bank.  He  had 
neither  a  definite  short  time  proposition  nor  quick 
assets.  The  banker  could  not  see  that  he  would  be  any 
better  able  to  pay  his  loan  at  the  end  of  three  months 
than  at  first.  The  banker  refused  the  loan.  He  ad- 
vised him  to  put  a  bond  issue  on  his  property.  From 
the  sale  of  the  bonds  the  owner  of  the  quarry  obtained 
funds  which  relieved  his  difficulties.  Later  the  bonds 
not  sold  were  deposited  as  bank  security  for  a  loan. 

If  the  quarry  owner  had  had  greater  knowledge  of 
banking  operations,  he  would  not  have  applied  for  the 
bank's  accommodation.  He  would  have  arranged  for 
the  bond  issue  on  his  own  initiative.  In  this  way  he 
would  not  have  made  evident  his  financial  ignorance. 

Your  bank  credit  should  be  held  in  reserve  as  a 
resource  for  temporary  demands  and  opportunities,  to 
enable  you,  to  be  forehanded,  able  to  discount  bills  and 
take  advantage  of  markets  or  meet  emergencies. 

The  minimum  amount  which  is  always  needed  in  a 
business  should  be  provided  without  dependence  upon 
banks;  the  temporary  requirements  are  the  legitimate 
employment  of  bank  funds. 

It  is  wise  to  go  to  the  bank: 

1.  When   the   loan   is   for   temporary  uses  as   con- 
trasted with  uses  which  involve  investment  in  fixed  im- 
provements. 

2.  When  your  quick  assets  are  sufficient  to  warrant 
the  Joan. 


WHEN  TO  USE  THE  BANK  21 

3.  When  you  have  a  definite  business  proposition 
which  insures  a  profit  from  the  money  you  borrow. 

If  you  cannot  meet  any  of  these  conditions,  it  is  ad 
visable  to  seek  money  from  other  sources. 

In  small  towns,  where  there  is  strong  competition  be- 
tween the  banks,  and  where  interests  other  than  purely 
banking  interests,  such  as  building  up  the  community, 
can  be  made  factors,  the  rules  are  sometimes  stretched 
or  ignored.  But  in  the  majority  of  cases,  the  bank's 
policy  is  also  your  policy.  When  banks  are  persuaded 
to  grant  loans  for  other  than  temporary  purposes,  a 
business  man  risks  being  forced  to  make  an  assignment 
or  to  go  out  of  business  in  order  to  meet  some  small  but 
urgent  demand. 

How  to  Secure  the  Bank's  Help  in  Furthering  Your 
Business  and  Financial  Interests 

The  most  vital  of  bank  services  is  this  of  granting 
loans.  But  there  are  other  aids  that  the  bank  offers, 
and  the  shrewd  business  man  will  take  advantage  of 
them.  The  banker  is  at  the  financial  focus  of  a  com- 
munity. He  is  in  touch  with  investors.  He  can  help 
to  secure  the  support  of  a  town  for  a  new  industry. 
He  can  advise  on  markets,  securities  and  investments. 
He  can  help  in  selling  stocks  and  bonds.  There  is 
hardly  a  financial  question  upon  which  he  does  not  give 
some  help. 

The  banker's  interests  often  coincide  with  yours. 
Men  skilled  in  finance  make  a  banker  a  partner.  They 
consult  with  him  on  all  matters  of  financial  importance. 
They  show  him  all  the  details  of  their  business.  This 
frankness,  besides  securing  his  confidence  and  accommo- 
dation, gains  access  to  the  other  services  he  can  offer. 

An  owner  of  a  chain  of  canning  factories  was  seek- 


22  WHERE  TO  GO  FOR  MONEY 

ing  a  new  site  in  Indiana.  The  task  of  securing  land 
from  the  town  on  the  best  terms  was  proposed  to  the 
local  banker.  The  recommendations  of  the  railroad 
officials  were  such  as  to  convince  him  of  the  value  of 
such  an  industry  to  his  locality.  Through  his  efforts 
the  commercial  club  was  prevailed  upon  to  secure  and 
donate  the  necessary  ground,  and  to  provide  trackage 
rights.  The  banker  also  used  his  influence  in  interest- 
ing the  farmers,  and  the  company  was  enabled  through 
the  medium  of  the  bank  to  operate  with  certainty  of 
an  adequate  crop.  Thus  the  bank  serves  the  interests  of 
its  patron  while  serving  itself  also. 

What  the  bank  can  do  for  its  customers  is  as  diverse 
as  the  activities  of  the  businesses  it  serves.  It  can  help 
almost  everywhere;  it  can  advise,  safeguard,  protect — 
handle  your  deposits  and  by  check,  your  payments  and 
receipts,  help  raise  money,  enlarge  trade,  advise  how 
you  may  decrease  expense  and  increase  profits. 

In  supplying  money,  however,  it  has  a  certain  well- 
defined  field  of  service;  to  recognize  this  increases  your 
financial  effectiveness  and  contributes  to  your  business 
reputation. 


Guard  Your  Credit 

/CREDIT  is  often  more  valuable  as 
V^  an  asset  than  capital.  The  bus- 
iness world  accepts  this  truth  and 
base«  it«  greater  activities  upon  it. 


CHAPTER  III 
How  to  Negotiate  a  Bank  Loan 

FIVE  hundred  thousand  dollars  was  recently  ob- 
tained offhand  on  a  promissory  note  by  a  large  de- 
partment store  to  discount  its  bills.  When  a  half 
million  dollars  is  procured  as  readily  as  this,  there  must 
be  good  reasons  aside  from  tangible  assets.  These  are 
the  reasons,  as  the  bank  president  gave  them: 

"The  character  of  the  store  proprietor  is  such  as  to 
inspire  full  confidence  that  the  loan  would  be  paid. 

"Analyzed,  this  confidence  arose  from  the  following 
considerations : 

"The  store  had  kept  faith  with  its  customers,  building 
up  good  will  as  it  built  up  its  sales. 

"It  had  put  tremendous  energy  into  selling,  but  never 
had  sold  under  false  pretenses  or  by  exaggerated  claims. 

"It  employed  good  buyers  and  insisted  on  a  high 
standard  in  its  salespeople. 

"Its  proprietors  were  always  open  and  above  board 
with  me.  They  told  me  every  essential  thing  they  did; 
consulted  me  at  least  once  a  month,  and  furnished  me 
with  detailed,  tabulated  reports.  I  never  had  occasion 
to  suspect  them  of  any  misstatements  or  false  optimism. 

'"A  sure  and  staple  market  existed  and  exists  for  the 
store's  goods." 


24  WHERE  TO  GO  FOR  MONEY 

The  same  principles  apply  equally  well  to  a  loan  of 
one  hundred  dollars.  The  most  important  point  in  your 
financial  effort  is,  therefore,  to  know  and  adapt  your- 
self to  this  basis  on  which  the  banker  can  safely  afford 
you  accommodation.  It  is  by  knowing  the  basis' for 
bank  loans,  by  framing  your  request  on  this  basis,  by 
approximating  the  banker's  conditions,  that  you  will  be 
able  to  secure  loans  and  fortify  your  credit  standing. 

In  country  banks  or  small  city  banks  the  cashier  and 
the  president  have  charge  of  loans.  In  the  large  city 
banks  the  great  volume  of  business  makes  specialization 
necessary.  Here  you  should  make  your  application  to 
the  official,  generally  a  vice-president,  who  has  charge 
of  loans  in  your  particular  line.  , 

The  first  necessity  in  applying  for  a  loan  is  to  secure 
an  introduction  to  the  officials  of  the  bank.  City  banks, 
as  well  as  country  banks,  desire  to  know  their  customers 
intimately.  The  local  real  estate  man,  the  factory 
owner,  the  contractor,  merchant  and  lawyer,  find  it  to 
their  interest  to  bring  the  bank  new  customers  of  the 
right  kind  from  week  to  week.  Where  your  reputa- 
tion is  high,  seek  a  bank  introduction  through  a  friend 
of  financial  prominence.  The  confidence  of  the  bank  in 
the  customer  who  introduces  you  will  accrue  to  your 
advantage. 

A  Michigan  man  went  into  the  paint  business  with 
one  great  asset — his  ability.  He  kept  a  checking  ac- 
count at  the  bank,  but  the  balance  was  usually  down  to 
the  vanishing  point,  and,  instead  of  asking  for  cash,  he 
felt  that  he  should  apologize  every  time  he  approached 
the  teller's  window. 

One  day  he  saw  a  chance  to  make  a  good  profit  by 
buying  paint  and  varnish  on  a  rising  market.  He  went 
to  the  banker. 


NEGOTIATING  A  LOAN  25 

"How  can  I  borrow  some  money ?"  he  asked — and 
then  he  felt  like  running  away. 

"On  what  security  ?"  inquired  the  financier. 

"A  carload  of  paint." 

The  banker  elevated  his  eyebrows.  "Paint  isn't  ex- 
actly the  kind  of  security  a  bank  wants, ' '  he  said.  ' '  Sup- 
pose you  couldn't  sell  it?  We  might  have  to  close  it 
out  at  a  heavy  discount."  I 

The  paint  man  admitted  this  was  true.  But  he  found 
courage  to  explain  his  plans  fully. 

The  banker  had  been  watching  this  young  man  for 
several  months,  not  because  his  bank  account  was  small, 
but  because  he  had  been  exhibiting  unusual  ability  as 
a  salesman.  It  is  seldom  that  these  things  escape  a 
local  banker.  He  considered  the  man's  selling  ability 
really  better  security  than  the  stock  of  paint,  and  he 
granted  the  accommodation. 

Your  best  guarantee  of  success  in  getting  a  loan  at 
the  bank  is  an  earlier  success  in  other  directions;  not 
necessarily  a  conspicuous  financial  achievement,  but 
success  in  attainment  of  those  personal  attributes  that 
make  character.  Individual  habits,  honesty,  contempt 
for  deceit  and  a  faculty  of  looking  at  things  in  a  true 
light — these  are  the  elements  that  build  confidence.  A 
look  at  the  personal  records  in  the  credit  department 
files  of  a  large  bank  would  convince  anyone  of  the  credit 
value  of  personality  and  character. 

How   Business  Records   and  Personal  History  Nay 
Be  Made  Factors  in  Securing  Bank  Loans 

After  character,  and  closely  associated  with  it,  come 
your  business  record  and  history.  The  banker  places 
emphasis  upon  your  history  and  he  is  entitled  to  know 
it  fully.  Have  you  always  paid  your  debts,  and  done 


26  WHERE  TO  GO  FOR  MONEY 

so  in  a  prompt  and  business-like  way?  Are  your  ex- 
pectations based  upon  knowledge  and  intelligent  calcu- 
lation, or  are  they  mere  guesses?  If  you  are  new  in 
the  community,  can  you  show  a  good  record  where  you 
have  lived?  If  you  are  new  in  business,  have  you  a 
clean  personal  record  in  someone's  employ?  The  more 
promptly  and  fully  you  show  up  these  details  the 
greater  chance  you  have  of  obtaining  a  loan. 

Two  concerns  applied  to  the  bank  for  a  loan.  One 
of  these  had  a  loan  item  disproportionate  to  its  finan- 
cial responsibility.  It  was  not  accustomed  to  "  clean 
up"  and  carried  practically  the  same  amount  of  loans 
continually.  This  constant  position  of  borrower  indi- 
cated a  cramping  for  capital,  a  fact  that  put  the  con- 
cern at  a  disadvantage.  The  history  of  the  firm  was  so 
good,  however,  that  the  bank  accorded  it  an  extended 
line  of  credit. 

Another  firm  which  had  gone  into  bankruptcy  pre- 
sented a  statement  far  superior.  It  was  refused  a  loan 
for  a  reason  the  opposite  of  that  for  which  the  honest 
although  struggling  management,  was  granted  accom- 
modation. The  personal  records  of  its  officials  did  not 
warrant  a  loan. 

What  the   Statement   and  the  Analysis  of  Business 
Mean  to  the  Bank 

When  ordinary  evidence  fails  to  secure  a  loan,  there 
is  one  argument  by  which  you  can  compel  the  bank's 
attention.  It  is  the  analysis  that  goes  deep  into  your 
resources — a  detailed  defense  of  your  assets.  You  should 
go  to  the  banker  certain  of  the  condition  of  your  busi- 
ness; ready  to  analyze  your  assets  and  needs  to  the 
last  detail.  An  analytical  statement  is  the  best  and  most 
business-like  proof  that  the  loan  is  justified. 


NEGOTIATING  A  LOAN  27 

The  statement  you  make  should  show  conspicuously 
the  assets  that  really  count  in  making  a  loan — the  quick 
assets,  such  as  accounts  receivable,  cash  and  merchan- 
dise. Against  these  you  should  set  off  your  accounts 
and  bills  payable.  Thus  you  can  furnish,  in  bird's-eye 
perspective,  your  situation  from  a  loaning  standpoint. 

If  you  expect  your  banker  to  grant  you  a  loan,  you 
should  also  be  open  and  candid  with  him.  If  you  do 
not  care  to  trust  your  banker  with  the  details  of  your 
business,  go  to  another  whom  you  can  trust.  The  in- 
terests he  guards  give  him  a  right  to  know  all  the  facts 
that  affect  your  solvency,  and  he  will  not  be  satisfied 
with  generalities. 

The  attempt  to  keep  the  banker  in  the  dark  about 
some  factors  of  a  business  is  made  even  by  honest  bor- 
rowers. They  tell  the  banker  what  they  wish  were  true, 
or  what  they  hope  is  going  to  be  true,  or  they  hold  back 
some  fact  which,  they  falsely  persuade  themselves,  may 
be  irrelevant. 

A  man  went  into  the  office  of  a  New  York  banker 
with  a  statement  which  was  perfectly  true  as  far  as  the 
business  itself  went.  But  he  suppressed  the  fact  that 
he,  personally,  had  borrowed  to  the  limit  on  his  life 
insurance.  As  it  happened,  that  was  important,  and  it 
happened  also  that  the  check  had  gone  through  this 
bank  and  the  fact  had  been  noted.  The  loan  was  re- 
fused. 

A  banker  gets  to  be  an  expert  in  detecting  these  res^- 
ervations.  If  some  discrepancy  does  not  betray  this 
kind  of  a  borrower,  his  manner  will.  And  deception  in 
even  a  minor  detail  undermines  confidence.  A  banker 
deciding  whether  or  not  to  make  a  loan  is  like  a  con- 
tractor digging  for  hardpan  upon  which  to  rest  the 
foundation  of  a  building.  Until  he  has  found  it,  he 


28  WHERE  TO  GO  FOR  MONEY 

doesn't  know  how  much  farther  down  it  is.  The  fact 
a  customer  conceals  may  be  trivial,  but  if  there  is  sus- 
picion of  concealment,  the  banker  cannot  be  sore  that 
his  loan  is  safe,  and  he  will  not  lend  unless  he  is  sure. 
On  the  other  hand,  confidence  inspires  confidence.  The 
man  who  makes  the  banker  a  consulting  partner  in  his 
business  finds  him  a  willing  helper  at  need. 

Next  to  frankness  in  presenting  the  details  of  your 
business  comes  the  exactness  of  your  knowledge  of  it. 
A  man  is  generally  considered  to  know  about  his  own 
business,  but  it  is  often  far  from  the  case.  Lack  of  trade 
knowledge  may  deceive  him  on  such  matters  as  depre- 
ciation, and  other  technical  points ;  or  he  may  be  blinded 
by  inherent  optimism.  Bankers  are  skeptical  on  this 
point,  but  evidence  of  thorough  knowledge  will  do  much 
to  overcome  this  skepticism  and  secure  confidence. 

Moreover,  the  indorsement  of  the  concern's  paper  by 
prominent  men  will  often  augment  its  credit 

A  firm  of  partners  was  accorded  a  loan  and  at  the 
same  time  a  manufacturing  corporation  that  presented 
a  better  statement  was  refused.  The  partners  had  large 
personal  estates  that  were  brought  to  the  bank's  atten- 
tion as  subject  to  the  debts  of  the  firm.  Thus  there  was 
really  greater  financial  backing  than  the  company's  state- 
ment itself  showed.  In  the  other  case,  the  directors 
did  not  indorse  the  company's  paper,  and  the  only 
security  was  that  actually  shown  in  the  statement.  Had 
the  directors  been  willing  to  indorse  the  corporation's 
paper  it  would  not  have  been  challenged. 

Meeting   the   Banker's   Requirements — What  to  Con- 
sider in  Applying  for  a  Loan 

To  negotiate  a  loan  at  the  bank,  understand  the  bank's 
requirements,  and  then  meet  them  as  far  as  possible. 


NEGOTIATING  A  LOAN  29 

Remember  that  perfect  credit  conditions  are  rare,  but 
that  the  borrower  who  most  fully  evidences  what  he  has, 
who  keeps  his  record  as  clear  as  possible  and  offers 
profitable  business  to  the  lender,  has  the  best  chance  to 
secure  the  bank's  service. 

In  applying  for  a  loan  you  should : 

1.  Get  an  introduction  by  a  favorably  known  cus- 
tomer. 

2.  Guard  against  all  compromising  appearances.  See 
that  your  private  and  business  life  are  such  that  they 
will  create  a  favorable  impression.    If  you  have  a  repu- 
tation for  honesty,  integrity  and  ability,  demand  your 
loan    on    that    asset  —  do  not  try  to  "fix  up"  your 
statement. 

3.  Submit  a  statement  of  your  business,  complete  in 
every  detail.     Make  sure  of  your  quick  assets. 

4.  Be  frank  in  your  dealings  with  the  bank.    Do  not 
withhold  facts.    Analyze  your  situation,  showing  what  is 
to  be  done  with  the  loan. 

5.  See  that  you  know  the  facts  of  your'  business.    Be 
careful  of  your  statements.    Do  not  exaggerate. 

6.  Consider  the  credit  value  of  your  business  record. 
If  favorable,  it  is  an  asset — it  can  be  used  to  secure  a 
loan. 

7.  Get  private  indorsement  of  your  company's  paper 
as  a  last  resort,  where  money  must  be  had  even  though 
the  security   implies  financial  weakness  and  need  for 
backing. 


BANKS  base  credit  on   the   assur- 
ance that  borrowers  can  pay  out 
of  their  quick  assets. 

— Geo.  M.  Reynolds 


CHAPTER  IV 
Getting  Aid  Where  You  Buy 

AS  personality  is  the  prime  factor  in  securing  a  loan 
from  a  commercial  bank  and  tangible  assets  in 
borrowing  from  a  bank  doing  a  general  loan  business, 
so  the  condition  of  your  business  is  the  chief  factor  in 
obtaining  a  line  of  credit  from  a  supply  house. 

When  you  go  to  a  supply  house  for  credit  you  are 
not  only  a  customer  for  credit,  but  you  are  also  a  cus- 
tomer for  goods.  The  credit  man  must  regard  sales  as 
well  as  credit  risk.  The  supply  house  is  desirous  of 
selling  as  much  goods  as  possible.  To  follow  a  policy 
of  extreme  conservatism  would  mean  the  loss  of  trade. 
If  you  carry  on  your  business  in  a  progressive  manner 
and  combine  with  good  management  the  degree  of  in- 
tegrity necessary  to  warrant  safety,  the  supply  house 
will  consider  this  sufficient  guarantee  that  it  will  be 
paid  for  the  goods  it  sells  you. 

The  problem  of  obtaining  credit  from  a  supply  house 
is  closely  associated  with  the  problems  of  business  or- 
ganization and  management.  It  is  necessary  to  consider 
them  together.  The  experience  of  a  merchant  in  a  small 
town  illustrates  how  a  retail  store  may  be  put  on  a 
basis  to  assure  credit. 

John  Black,  a  dry  goods  salesman,  decided  to  put 

30 


CREDIT  FEOM  SUPPLY  HOUSES  31 

ten  thousand  dollars  into  the  dry  goods  business.  After 
he  had  selected  his  location,  the  first  problem  was  the 
purchase  of  fixtures.  Next  he  was  obliged  to  place  a 
limit  upon  the  credit  he  would  extend  to  customers. 
This  was  a  vital  problem,  and  one  that  would  affect  the 
credit  standing  of  his  store.  Deducting  the  amount  tied 
up  indefinitely  in  fixtures  and  in  customers'  credits,  he 
had  left  a  working  capital  of  six  thousand  dollars.  On 
this  capital  he  should  be  able  to  secure  four  thousand 
dollars  credit  from  his  supply  house.  This  would  enable 
him  to  carry  ten  thousand  dollars  stock.  As  he  could 
turn  it  three  times  a  year,  he  was  in  a  position  to  do 
an  annual  business  of  thirty  thousand  dollars. 

His  expenses  were  not  to  be  more  than  twenty  per 
cent  of  the  total  sales — six  thousand  dollars  per  an- 
num, or  one  thousand  dollars  every  sixty  days.  His 
bills  fell  due  in  sixty  days.  On  the  basis  outlined  his 
business  was  conducted  thus: 

Original  cash  capital .  .  .  $10,000  Stock  carried $10,000 

Fixtures 2,000  Sales  for  year 30,000 

Sales  every  sixty  days  .  .      5,000 

$  8,000  Deduct  expenses  and  personal 

Customers'  accounts  .  .  .      2,000          withdrawals  for  60  days     1,000 

Cash  including  profits,  to 

$  6,000          apply  to  accts.  payable        4,000 

Credit  from  jobbers  .  .  .      4,000      (which  last  entr^  Proves  UP  with 

the  item,  "Credit  from  jobbers.") 

'John  Black  was  able  to  establish  a  successful  busi- 
ness. He  planned  not  only  to  put  his  business  on  a 
sound  basis,  but  he  considered  also  his  credit  standing. 
He  limited  his  outlay  for  fixtures;  he  limited  the  amount 
of  his  accounts  receivable ;  he  planned  his  business  and 
took  collection  precautions  so  that  he  could  meet  his 
notes  when  due;  he  accepted  an  amount  of  credit  well 
proportioned  to  his  working  capital. 


32  WHERE  TO  GO  FOB  MONEY 

As  in  the  case  of  John  Black,  your  credit  standing 
with  the  supply  house,  as  well  as  the  success  of  your 
store,  depends  upon  the  following  factors: 

1.  Selecting  the  right  location. 

2.  Money  paid  for  store  fixtures. 

3.  Limit  placed  on  customers'  accounts, 

4.  Amount  of  credit  accepted  from  jobbers. 

5.  Annual  turnover. 

6.  Cost  of  doing  business. 

The  extent  to  which  you  may  use  your  suppliers' 
credit  depends  upon  the  nature  of  your  business.  In 
some  cases  the  supplier  makes  the  retailer  his  agent 
and  demands  remittances  only  as  the  goods  are  sold  and 
as  the  final  purchaser  settles.  Other  houses  require 
remittances  on  the  first  of  every  month  or  thirty  days 
after  the  date  of  delivery. 

Some  supply  houses,  especially  new  and  small  con- 
cerns, furnish  actual  capital  in  money,  and  in  order  to 
secure  trade  will  offer  long  time  credit  terms.  If  you 
need  additional  capital  to  start  or  to  carry  on  your 
business,  supply  house  credit  offers  great  advantages 
and  few  disadvantages.  It  is  more  easily  secured  than 
most  other  kinds  of  credit.  In  the  case  of  a  stock  of 
goods,  the  payment  of  the  amount  is  provided  for  by 
the  sales.  Unlike  the  method  of  taking  in  capital  by 
an  issue  of  stock  or  by  taking  in  a  moneyed  partner, 
this  method  entails  no  sacrifice  of  part  management  in 
the  enterprise. 

With  ample  credit,  the  advisability  of  accepting  ac- 
commodation from  your  supply  house  depends  upon 
the  amount  of  the  discount  for  cash  and  the  value  of 
the  money  to  you  in  some  other  investment.  For  in- 
stance, if  the  discount  is  small  and  the  money  market 


CREDIT  FROM  SUPPLY  HOUSES 


33 


high,  the  money  you  would  have  to  pay  IIF  cash  might 
earn  more  in  sixty  or  ninety  days  than  the  amount  of 
the  discount. 

While  there  are  advantages  in  obtaining  credit  from 
the  supply  house,  it  often  entails  over-buying.  Pay- 
ments look  small  at  a  distance.  When  credit  is  extended 
and  no  sacrifice  is  demanded  for  a  long  time,  a  retailer 
is  often  persuaded  to  lay  in  stock  that  he  will  be  unable 
to  sell,  a  stock  that  will  "grow  whiskers/7  to  use  the 
credit  man's  phrase.  In  the  liquidation  of  a  store  in 


[                Trade  Reached 

1                    Competition 

1            Operating  Advantages 

1           Fixtures  and  Equipment 

' 

1                         Stock 

1                       Reserves 

1               Financial  Methods 

1            Efficiency  of  Control 

Business  Factors, 

1                      Accepted 

Supply  House  CrecHt 

1            Number  of  Creditors 

1    Standing  with  Credit  Agencies 

1                Buying  Methods 

1             Production  Methods 

[           Executive  Policies            |  

[           Handling  of  Employees 

1         Dealings  with  Customers 

1  1            Relations  with  Public           | 

[_                  Turnover                      | 

1  1           Cost  of  Operation           I  

1                   Selling  Costs                    | 

1             Overhead  Expenses              | 

Securing  permanent  credit  support  from  the  manufacturers  and  wholesalers  who  supply 

the  mill  and  stor^,  depends- upon  your  demonstration  that  every  important  factor  in 

your  business,  as  here  suggested,  favors  a  prospect  of  consistent  profits 

northern  Illinois,  in  1910,  a  stock  of  caps  was  found 
which  was  made  expressly  for  the  Grant-Colfax  presi- 
dential campaign  in  1872. 

There  is  a  close  analogy  between  jobbers'  credit  and 


34  WHERE  TO  GO  FOR  MONEY 

bank  credit.  The  same  general  factors  of  personality, 
assets  and  business  possibilities  apply.  As  in  the  case 
of  a  bank  loan,  you  should  first  understand  the  nature 
of  supply  house  credit  and  then  meet  the  requirements. 
What  the  credit  man  wants  to  know  about  you  is  sug- 
gested by  the  chart  in  this  chapter. 

Remember  that  knowledge  is  back  of  confidence. 
Moreover,  frankness,  willingness  to  submit  difficulties  as 
they  are,  is  one  of  the  greatest  factors  in  securing  credit 
from  whatever  source. 

A  southern  merchant  had  seen  the  credit  man  of  his 
supply  house  only  a  few  times.  He  considered  himself 
an  almost  entire  stranger.  In  the  course  of  his  conver- 
sation he  misstated  some  facts.  He  had  not  gone  far, 
however,  before  the  credit  man  checked  him  with  an 
abrupt  gesture. 

"Do  you  mean  to  say  that  your  stock  is  worth  fifty 
thousand  dollars?"  the  credit  man  asked. 

[The  supply  house  official  then  entered  into  a  com- 
plete account  of  his  prospective  customer's  history,  told 
him  when  he  came  to  this  country,  where  he  got  his 
capital,  how  many  children  he  had,  where  he  lived,  the 
location  and  business  of  his  relatives,  the  condition  and 
extent  of  his  stock. 

The  merchant  fell  back  in  his  chair.  He  had  learned 
the  lesson  of  misrepresentation  before  a  credit  man,  too 
late. 

Likewise,  as  in  bank  credit,  the  smallest  factors  of 
personality  and  habits  are  considered  by  the  credit  de- 
partment of  the  factory  and  jobbing  house. 

A  dry  goods  store  in  a  little  town  in  Nebraska  has 
been  running  for  several  years.  At  first  the  proprietor 
met  his  bills  regularly.  Recently,  however,  he  asked 
for  a  considerable  extension  of  credit.  It  was  granted 


CREDIT  FROM  SUPPLY  HOUSES  35 

after  some  hesitation.  This  merchant  is  now  on  the 
"keep-track  list,"  and  at  the  bottom  of  the  card,  un- 
derneath the  statement,  is  one  matter-of-fact  word  which 
explains  the  whole  case — "Drinking." 

How  to  Use  the  Credit  Man's  Service  in  Financing 
Your  Business 

The  credit  man  is  an  expert  in  his  line  and  that 
means  that  in  most  cases  he  is  an  expert  in  your  line 
also.  His  value  to  his  house  depends  largely  upon  the 
extent  of  his  knowledge  of  the  trade  he  serves.  He 
has  watched  hundreds  of  business  successes  and  failures. 
He  knows  the  why.  One  credit  man  said  that  he  could 
tell  in  fifteen  minutes  what  was  the  matter  with  almost 
any  store — and  it  was  not  vain  boasting  either. 

The  credit  man  is  willing  to  help  you,  not  only  to 
finance  your  business,  but  to  make  it  grow  and  pay. 
He  requires  in  return  absolute  frankness  in  your  deal- 
ings with  him,  and  your  confidence. 

A  country  merchant  violated  the  two  great  rules  the 
credit  department  recommended,  that  is,  he  stretched 
his  own  credit  and  extended  too  much  to  his  customers. 
One  day  this  man,  Blackwell,  rushed  into  the  office  of 
the  wholesale  house  in  whose  debt  he  stood. 

' '  The  sheriff  is  in  possession  of  my  store ! "  he  said. 

The  credit  man  knew  that  Blackweirs  trouble  was 
due  chiefly  to  inexperience,  but  he  had  confidence  in  his 
ability.  Taking  a  draft  for  five  thousand  dollars,  the 
credit  man  returned  with  Blackwell  to  his  town;  the 
claim  was  satisfied  and  the  sheriff  left  the  premises. 
Blackwell  was  then  installed  as  manager,  acting  for  the 
jobbers  who  had  accommodated  him. 

Eventually,  by  following  the  rules  rigidly,  Blackwell 
turned  the  stock,  paid  the  creditors  in  full,  and  came 


36  WHERE  TO  GO  FOR  MONEY 

once  more  into  control  of  the  reorganized  store  with  a 
small  working  capital  to  proceed  on. 

Small  Factors  Which  Have  a  Big  Influence  in  Obtain- 
ing Credit  from  a  Supply  House 

The  merchant  who  needs  credit  and  who  values  his 
credit  standing  should,  in  the  first  place,  do  business 
with  one  house  as  much  as  possible,  and  as  a  precaution 
against  foreclosure,  he  should  avoid  having  a  large 
number  of  small  creditors,  that  is,  "  spreading  his  credit 
too  thin." 

A  man  who  went  to  a  supply  house  for  credit,  doing 
a  business  on  a  capital  of  twenty  thousand  dollars,  had 
sixty-four  creditors.  The  credit  man  was  obliged  to 
refuse.  A  number  of  small  creditors  are  dangerous. 
They  have  little  real  interest  in  the  debtor,  and  are 
likely  to  force  him  to  liquidate  on  the  first  sign  of 
financial  embarrassment.  The  tendency  at  present  is 
to  deal  as  much  as  possible  directly  with  the  manufac- 
turer. To  buy  at  random  for  the  sake  of  little  savings 
in  price  often  results  in  complete  loss  of  credit. 

Remember  that  the  surest  basis  for  accommodation  is 
in  the  management  of  your  business.  Plan  your 
financing  in  advance;  consider  how  much  credit  you 
may  reasonably  demand  and  the  amount  you  should 
extend  to  customers.  Watch,  also,  such  matters  as  ap- 
pearances, insurance,  the  condition  of  your  stock, 
courtesy  in  dealing  with  employees  and  customers.  Es- 
tablish a  reputation  for  integrity.  Cooperate  with  credit 
agencies.  Show  willingness  to  consider  the  interest  of 
house  extending  you  accommodation. 

It  is  good  policy  to  establish  a  personal  relation  with 
the  credit  man,  and  to  consult  him  on  all  matters  of 
financial  importance. 


CHAPTER  V 
Taking  in  Capital 

TAKING  in  capital  means  sharing  the  profits  and 
sharing  the  risk.  There  are  two  ways  to  take  in 
capital:  (1)  by  admitting  a  moneyed  partner;  (2)  by 
issuing  stock. 

An  inventor  advertised  for  capital  to  float  an  enter- 
prise. He  received  five  answers:  four  from  chattel 
mortgage  sharks,  and  one  from  a  man  who  had  a  little 
money  and  desired  employment  for  himself  as  well  as 
for  it.  The  inventor  accepted  the  last  offer. 

His  partner  appeared  at  first  to  have  some  ability. 
The  inventor's  good  opinion  of  him,  however,  did  not 
last.  Every  night  when  the  inventor  came  in  tired  but 
loaded  down  with  orders,  his  partner  would  be  waiting 
for  him  with  a  typewritten  list  of  matters  upon  which 
he  wanted  to  consult.  The  inventor  would  skim  through 
the  list  and  tell  him  what  to  do.  "What  he  was  told  he 
would  always  write  down,  for  fear  of  forgetting.  He 
had  waited  for  orders  until  he  could  not  overcome  the 
habit.  In  a  few  months,  capital  ran  short.  The  part- 
nership was  dissolved,  although  the  interest  in  the  pat- 
ent was  still  divided.  Later  the  inventor  sold  the  patent 
for  ten  thousand  dollars  and  was  obliged  to  give  five 
thousand  of  it  to  his  former  incapable  partner. 

37 


38  WHERE  TO  GO  FOR  MONEY 

This  incident  illustrates  the  greatest  danger  of  admit- 
ting a  moneyed  partner — that  of  not  knowing  before- 
hand whether  he  will  be  a  help  or  a  handicap — of  ap- 
praising the  mere  money  assistance  above  the  positive 
or  negative  influence  of  the  new  half  owner. 

The  choice  of  a  partner  is  similar  to  the  employment 
of  a  high  executive,  except  that  in  the  one  case  the  em- 
ployee can  be  discharged,  and  in  the  other  a  lack  of 
the  qualities  necessary  to  the  position  can  be  remedied 
only  at  the  cost  of  one-half  of  the  entire  business. 

When  Taking  in  a  Moneyed  Partner  Offers  the  Best 
Means  of  Obtaining  Capital 

An  odd-looking  westerner  entered  the  office  of  a  small 
real  estate  dealer  in  the  outskirts  of  New  York.  He 
had  had  successful  real  estate  experience,  but  he  was 
tired  of  little  deals  and  wanted  to  engage  in  business 
on  a  bigger  scale.  After  he  had  presented  his  project, 
the  New  York  real  estate  man  told  him  that  there  was 
a  real  estate  office  on  every  corner  and  that  all  the  real 
estate  men  in  that  section  were  on  the  verge  of  starva- 
tion. But  the  new-comer  was  not  easily  discouraged. 
rJust  as  he  started  to  leave,  disparaging  New  York  meth- 
ods, the  New  York  man  called  him  back. 

"Hold  on,  Jenkins,"  he  said.  "You  are  a  good 
bluffer  at  any  rate.  Here  is  a  list  of  properties — see 
what  you  can  do." 

The  next  morning  when  the  real  estate  dealer  reached 
his  office,  Jenkins  was  there  with  a  weazened  little 
old  woman  whom  he  introduced  as  his  landlady.  In  a 
week  he  had  sold  her  a  ten-apartment  building.  After 
that,  the  partnership  was  clinched.  Jenkins  added  what 
capital  he  had.  Business  prospered.  The  only  phase 
of  the  work  in  which  Jenkins  proved  weak  was  in  the 


TAKING  IN  CAPITAL  39 

office  and  legal  end,  and  that  became  the  main  part  of 
the  New  York  man's  work. 

The  experience  of  the  New  York  real  estate  dealer 
illustrates  the  best  occasion  for  taking  in  a  moneyed 
partner.  In  his  case  he  secured,  not  only  additional 
capital  to  attempt  a  larger  business,  but  he  got  new 
blood  into  his  enterprise.  Furthermore,  the  partner 
was  strong  where  he  was  weak.  Neither  could  have 
done  so  well  alone. 

There  is  seldom  a  case  where  money  is  needed  more 
than  brains  and  energy.  Most  successful  partnerships 
are  formed  in  view  of  both  of  these  requisites.  Some 
lines  of  business  call  for  diverse  knowledge  and  abilities 
that  no  one  can  combine.  For  instance,  in  a  manu- 
facturing plant  the  owner  may  have  expert  knowledge 
of  factory  management,  but  he  may  be  weak  in  knowl- 
edge of  sales  organization.  Or,  one  branch  of  an  enter- 
prise may  depend  upon  another.  A  grocery  store  is 
often  handicapped  because  of  the  distance  to  the  next 
butcher  shop.  A  further  advantage  of  this  method  lies 
in  the  fact  that  in  the  case  of  new  schemes  or  enter- 
prises based  on  new  inventions  there  is  often  difficulty 
in  securing  funds  in  any  other  way.  Banks  will  seldom 
give  aid.  A  stock  issue  or  borrowing  from  private  in- 
vestors is  seldom  possible  because  of  the  difficulty  of 
convincing  a  large  number  of  people  of  the  profit 
chances  of  your  scheme.  The  money  secured  through 
partnership  belongs  entirely  to  your  enterprise.  There 
is  no  interest  to  pay  on  it,  and  you  are  in  no  danger, 
as  where  loans  are  sought,  of  being  forced  to  go  out  of 
business  to  pay  back  the  money. 

There  are  two  ways  to  secure  a  moneyed  partner: 
(1)  by  presenting  your  proposition  among  friends  and 
acquaintances;  that  is,  broadly  speaking,  private 


40  WHERE  TO  GO  FOE,  MONEY 

means,  and  (2)  by  advertising  in  the  "business  oppor- 
tunities" columns  of  the  newspapers  and  periodicals,  or 
public  means. 

When  you  are  considering  a  partner,  do  not  be  in 
too  great  a  hurry— give  yourself  time  to  test  him. 
"Choosing  a  partner  is  like  choosing  a  wife" — in  either 
case  there  is  need  for  second  thought  and  sure  knowl- 
edge. 

A  Michigan  man  was  looking  for  a  partner  to  take 
charge  of  the  sales  department  of  his  concern.  Instead 
of  choosing  a  man  in  the  usual  haphazard  way,  on  a 
chance  acquaintanceship,  and  after  a  quick  judgment, 
he  made  a  complete  investigation  of  several  prospects, 
involving  his  spare  time  for  more  than  three  months. 
He  visited  the  places  where  they  had  lived.  He  found 
out  about  their  habits,  and  their  standing  among  neigh- 
bors, friends  and  critics.  He  interviewed  their  previous 
employers.  He  found  out  what  they  had  done,  their 
ability  and  their  trustworthiness.  The  investigation 
cost  considerable  time  and  money,  but  it  was  cheap  in- 
surance. 

A  newspaper  man  who  was  locking  for  a  partner  had 
received  an  offer  of  a  block  of  shares  in  a  gas  company 
conditioned  on  his  support  of  a  questionable  franchise 
grant  to  them. 

"We've  got  five  thousand  dollars  to  start  with,"  he 
said  to  his  prospective  associate. 

"But  it's  a  bribe,"  was  the  quick  reply. 

It  was  the  answer  the  newspaper  man  had  wanted. 

In  another  case  a  manufacturer  of  gasoline  motors 
tested  the  business  acumen  of  prospective  partners  by 
noticing  how  they  accepted  a  glowing  word  picture  of 
visionary  profits  to  be  made  immediately  by  manufac- 
turing motors  for  aeroplanes. 


TAKING  IN  CAPITAL  41 

Before  admitting  a  partner  you  should  know : 

1.  About  his  ability,  his  past  record,  his  standing  in 
the  community,  his  technical  knowledge,  his  education, 
his  personal  habits,  his  financial  expertness. 

2.  Whether   his   knowledge,    experience   and   ability 
complete  yours,   and  you  could  work  with  him  to  ad- 
vantage. 

3.  Whether  he   has  a  disposition  that  inclines  him 
to  restlessness. 

4.  Whether  he  is  ambitious ;  whether  he  will  put  his 
best  efforts  into  building  up  your  concern. 

5.  Whether   he    is    honest  —  whether    his    character 
warrants  complete  trust. 

Two  merchants  who  had  implicit  confidence  in  each 
other  formed  a  partnership  upon  an  unusually  wise 
base.  They  anticipated  no  difficulties  from  misunder- 
standing or  from  personal  differences,  but  they  provided 
for  them  nevertheless.  In  the  articles  they  drew  up 
they  arranged  for  joint  appraisal  or  an  arbitration  com- 
mittee to  settle  differences  between  their  estimates  of 
the  value  of  their  business  at  any  time.  They  agreed 
also  that  no  matter  which  presented  the  proposition  for 
dissolution  the  other  would  have  the  right  either  to  buy 
or  to  sell.  They  provided  also  for  even  responsibility 
in  the  addition  of  new  capital.  These  safeguards  often 
appear  at  first  to  be  needless,  but  the  experience  of  a 
large  number  of  partnerships  confirms  their  value.  In 
preparing  the  agreement  for  a  partnership,  you  should 
provide  specifically  for  a  clear  division  of  the  duties, 
for  the  amount  of  profits  to  be  taken  out  and  the  amount 
to  be  put  back  into  the  business,  for  a  fair  interest  on 
all  investments  and  withdrawals,  for  reserves,  for  the 
salary  basis  in  case  the  profits  are  not  divided  evenly, 
for  the  routine  of  appraisal  and  continuation  or  liquida- 


42  WHERE  TO  GO  FOR  MONEY 

tion  of  the  business  in  case  of  the  death  or  withdrawal 
of  one  of  the  partners. 

The  Second  Method  of  Taking  in  Capital — Issuing 
Stock  for  an  Enterprise 

There  is  a  close  connection  as  to  advantages  and  dis- 
advantages between  the  issue  of  stock  and  the  first 
method  of  taking  in  capital — the  partnership.  In  both 
cases  the  risk  and  also  the  profits  are  divided. 

In  most  small  businesses  a  stock  issue  is  impracticable. 
These  enterprises  depend  almost  entirely  upon  the  abil- 
ity of  the  management  and  an  issue  of  stock  entails  a 
sacrifice  of  management  to  the  stockholders.  One  stock- 
holder will  advise  one  thing;  another  something  else. 
It  is  generally  a  case  of  too  many  cooks.  Occasionally 
inactive  stockholders  are  looking  only  for  a  chance  to 
invest  their  money  profitably.  In  most  small  enter- 
prises, however,  it  is  as  easy  to  secure  loans  from  these 
investors  as  to  sell  stock.  The  advisability  of  a  stock 
issue  under  these  conditions  depends  upon  your  eager- 
ness to  divide  the  risk. 

With  larger  corporations — railways  and  great  indus- 
trial works  in  which  a  large  amount  of  capital  is  needed — 
stock  and  bond  issues  offer  the  only  solution  possible. 

Whether  or  not  it  would  be  advisable  for  you  to  adopt 
this  method  of  raising  capital  depends,  in  the  first  place, 
upon  whether  interested  stockholders  would  be  a  help 
to  your  enterprise.  With  the  interurban  trolley,  the 
gas,  electric  light  and  water  companies  of  the  small 
city,  nothing  will  aid  so  much  in  the  work  of  construc- 
tion, in  securing  patronage  and  retaining  it,  as  having 
shares  scattered  among  the  farmers,  workmen,  merchants 
and  professonal  men  of  the  community.  This  is  also 
true  of  many  wholesale  ventures. 

f 


TAKING  IN  CAPITAL  43 

A  plumber  decided  to  raise  capital  to  start  an  enter- 
prise based  upon  a  device  he  had  perfected.  He  had 
some  capital  of  his  own  and  could  have  raised  the  nec- 
essary money  by  borrowing  on  his  collateral  and  on 
personal  notes.  He  reasoned,  however,  that  if  he 
should  form  a  corporation  and  sell  the  stock  to  the 
plumbers  in  the  district  where  he  expected  to  do  busi- 
ness, the  success  of  his  venture  would  be  assured.  The 
plan  succeeded.  The  users  of  the  company's  product 
were  directly  interested  in  its  welfare.  Their  support 
alone  secured  enough  business  to  establish  the  enterprise. 

In  the  actual  placing  of  shares  of  stock,  principles 
similar  to  those  of  securing  a  moneyed  partner  apply. 
The  method  may  be  either  public  or  private.  As  a  gen- 
eral rule,  only  private  presentation  is  practicable  except 
in  the  case  of  large  corporations.  The  strongest  pros- 
pectus not  only  develops  the  project  but  indicates  the 
successful  interests  back  of  it.  Signatures  are  best  se- 
cured on  a  single  sheet,  headed  with  the  names  of  the 
most  influential  stock  buyers. 

When  the  money  is  needed  for  the  expansion  of  the 
business,  the  basis  of  the  selling  campaign  should  be  the 
complete  report  of  some  certified  public  accountant, 
showing  exactly  what  has  been  done  in  the  past.  This 
statement  will  get  consideration  when  nothing  else  will. 
It  is  always  expected  that  the  promoter  of  an  enter- 
prise will  be  enthusiastic,  but  facts  and  figures  are  not 
subject  to  mental  discount. 

A  close  analogy  exists  between  the  issue  of  bondsi  and 
the  issue  of  stock.  A  bond,  however,  is  a  direct  lien 
upon  the  property  of  the  corporation.  A  stock  issue 
divides  the  risk;  a  bond  issue,  on  the  other  hand,  is  a 
form  of  mortgage ;  the  risk  and  profit  are  wholly  upon 
the  business. 


44  WHERE  TO  GO  FOR  MONEY 

in  presenting  stock  for  sale  among  local  investors, 
let  your  prospectus  touch  their  interests,  not  only  on  the 
basis  of  possible  direct  profit,  but  also  on  the  basis  of 
indirect  benefits  to  be  derived.  The  ease  with  which 
you  sell  your  stock  depends  upon  your  ability  to  talk 
your  proposition.  Find  out  what  interests  appeal  most 
strongly  to  your  particular  prospect,  and  emphasize 
them.  In  selling  the  stock  of  a  preserving  factory  in 
an  Idaho  town,  the  promoters  showed  the  advantage  to 
the  farmers  in  markets ;  the  advantage  to  the  banker  in 
increased  accounts ;  and  the  advantage  to  the  merchants 
in  increased  sales  of  supplies  to  the  plant  and  to  the 
employees.  The  stock  of  a  sanitarium  was  sold  by 
showing  the  local  investors  how  the  town  would  become 
more  desirable  for  residences,  how  property  values 
would  appreciate,  how  the  practice  of  physicians  would 
be  built  up,  and  how  the  merchants  could  increase  their 
business.  In  placing  stock,  these  are  some  of  the  inter- 
ests to  play  upon.  Show  how  your  particular  prospect 
will  be  benefited  indirectly  and  how  profits  may  reason- 
ably be  expected  from  the  business  itself.  In  this  way 
you  will  secure  cooperation  and  support,  as  well  as 
capital. 


Keep  Control 

TF  outside  capital  must  be  secured, 
A  let  it  come  from  those  who  have 
implicit  confidence  in  the  organizers 
and  who  will  consider  the  advance  only 
as  a  profitable  investment. 

— Henry  Clews 


Part  II 


HOW  TO  SATISFY  THE  LENDER 


What  is  Credit? 

AT  the  movement  of  a  finger  a  bargain  of  six  figures  is 
made  in  the  wheat  pit.  A  word  and  a  nod  buy  and 
sell  carloads  in  the  wholesale  house.  Confidence  —  the 
confidence  of  the  sales  agent  in  the  buyer  —  underlies  and 
expedites  credit  business. 

In  precisely  the  same  way  confidence  underlies  the  in- 
vestment and  the  lending  of  money  —  the  financing  of  your 
business.  The  man  who  furnishes  funds  buys  and  sells 
the  use  of  money  on  credit.  To  secure  a  supply  of  money 
from  him  you  must  show  him  that  it  is  good  business  for 
him  to  lend;  you  must  make  him  confident  of  receiving 
his  principal  and  his  profit. 

You  may  secure  your  creditor  by  tangible  assets  legally 
bound  and  beyond  your  control;  or  you  may  secure  him 
by  your  personal  promise  to  pay. 

A  personal  promise  depends  on  your  willingness  and 
your  ability  to  keep  it.  Men  of  honor  are  often  uaable 
to  pay  —  men  of  property  are  often  dishonest.  To  estab- 
lish both  your  ability  and  your  willingness  to  pay  requires 
a  statement  of  the  property  you  own;  all  possible  evidences 
of  your  business  ability  in  handling  your  property  and 
enterprises;  thorough  demonstration  of  your  character. 

The  more  flawless  the  business  record  you  consciously 
develop  and  the  more  thoroughly  you  present  this  evi- 
dence with  business-like  acumen,  the  more  easily  can  you 
secure  money.  Consistent  credit  can  be  had  only  by 
proving  that  you  are  unflaggingly  honest  and  capable  — 
that  you  will  make  every  effort  to  repay;  and  that  back 
of  effort  lies  financial  knowledge  linked  with  business 
power. 


in: 


net 


FACTORS    THAT     ESTABLISH 
FINANCIAL    CONFIDENCE 


Location 
Investment 

for  Fixtures 
Permanent 

Improvements ' 
Credit  Granted 
Credit  Accepted 
Annual  Turnover 
Cost  of  Operation 


Personality 

Character 

Habits 

Reputation' 

Ability 

Private 

Expenditure 
Courtesy  in 

Your  Business 
Expectations 


Introduction 


Organization 

and  Capital 

Details  of  Growth,  Frankness 

Ownership,  DivU  Thorough 

dends.  Surplus  Knowledge  of 
Assets 

Bills  Payable  Your  Bu,.neM 

Liabilities  and  Certified 

Creditors  Statement 

Condition  of  Stock      _     . 

•v  Business  Judgment 

Demonstrated 
Security  Offered 
Friendship 

Established 
Persuasive  Appeal 
Business  Favors 


Sales    .; 
Income 
Expenses 
Ratio  of  Stock 

to  Sales 
Profits     ' 
Turnovers 
Credit  Granted 
Business  Prospects 
Stock   Inventory 
Bills  Receivable 
Returned  Goods 
Holdings  and 

Their  Appraisal 
Insurance 


to  Lender 
Arousing 
Competition  of 
Lenders  for 
Your  Account 


Your   Record 


Your  Presentation 


Your  Business  Statement 


Your  Security 


Ability  to  raise  funds  depends  on  the  business  and  oersonal  factors  the 
borrower  introduces,  as  shown  by  this  chart.     Money  merchants  quickly 
recognize  a  clean  record,  a  strong  appeal,  a  complete  statement  and  bus- 
iness-like security 

•••  • 


CHAPTER  VI 

Financing  on  Real  and  Personal 
Property 

$50,000  was  needed  by  a  southwestern  chamber  of 
commerce  for  the  erection  of  a  new  building.  To 
raise  funds  the  directors  joined  hands  with  a  local  life 
insurance  company  which  was  seeking  to  gain  the  mo- 
mentum of  high-grade  local  patronage.  The  insurance 
officials  offered  the  chamber  of  commerce  a  liberal 
share  of  the  commission  on  every  policy  written  at  the 
instance  of  its  membership  within  a  given  time.  Upon 
this  basis,  the  chamber  of  commerce  financed  its  build- 
ing completely  in  less  than  sixty  days. 

The  secretary  of  a  Pennsylvania  concern  was  buying 
the  sales  rights  of  a  subsidiary  product.  He  financed 
the  purchase  by  selling  five  town  lots  on  time ;  by  secur- 
ing $750  from  an  aunt  who  agreed  to  become  a  silent 
partner,  and  by  borrowing  $500  from  his  former  em- 
ployer on  his  personal  note. 

Finance  has  but  one  rule  for  securing  funds — give 
an  equivalent.  Getting  money  may  always  be  consid- 
ered as  a  straight  transaction  of  purchase  and  sale.  The 
chamber  of  commerce  sold  to  the  life  insurance  com- 
pany its  services  as  a  policy- writing  agent,  backed  by 
the  efforts  of  its  powerful  business  membership  and  its 

47 


48  HOW  TO  USE  CREDIT 

parallel  appeal  for  the  endowment  of  a  public  institu- 
tion. The  Pennsylvania  secretary  actually  disposed  of 
his  real  estate  and  sold  to  a  money  broker  the  notes  re- 
ceivable thereon;  to  his  partner  he  sold  a  fraction  of 
the  possibilities  of  his  enterprise ;  and  to  his  former  em- 
ployer he  sold  an  investment  for  a  definite  period,  giv- 
ing as  a  final  consideration  a  share  of  his  future  income 
amounting  to  the  full -money  value  plus  a  guaranteed 
profit  of  six  per  cent.  He  first  used  actual  possessions 
which  he  could  transfer  to  another  holder,  and  then  filled 
out  his  fund  by  resort  to  his  credit  standing  and  in- 
tangible chances  of  future  profit,  in  which  the  money 
lender  was  willing  to  purchase  an  investment. 

When  money  is  needed  for  a  business  the  one  question 
is:  "What  have  I  to  sell?"  And  the  obvious  answer — 
the  easiest  and  most  certain  source  of  funds — lies  in 
those  material  properties  which  can  be  transferred  to 
or  legally  bound  by  the  concern  that  in  return  furnishes 
you  with  money. 

How  to  List  Your  Properties  and  Choose  Those  That 
Will  Help  You  Most  in  the  Money  Market 

Finances  are  often  secured  by  sale  or  pledge  of  prac- 
tically every  item  that  shows  upon  an  inventory  sheet; 
real  estate  and  buildings,  leases,  water  frontage,  freight 
connections,  water  power  rights,  machinery  and  fixtures, 
products  at  any  stage  of  manufacture  where  they  are 
easily  convertible,  franchises  and  contracts,  copyrights 
and  patents,  life  insurance  policies,  prospect  and  sales 
lists.  Negotiable  paper  and  securities,  such  as  the  real 
estate  mortgage,,  the  bond  and  the  warehouse  receipt  for 
grain,  are  based  upon  definite  material  property  and 
have  a  recognized  sale  or  loan  value  when  taken  to 
proper  markets.  Other  securities,  such  as  stock  certifi- 


FINANCING  ON  PROPERTY  49 

eates,  notes  receivable  and  accounts  receivable,  have  no 
tangible  backing  except  the  general  credit  and  profit 
chance  of  the  debtors.  Such  securities  are  usually  de- 
posited by  a  borrower  merely  to  strengthen  the  credit 
standing  which  is  actually  the  basis  of  the  loan.  Nine 
hundred  thousand  dollars  was  recently  advanced  upon 
deposit  with  an  agreed  trustee  of  $1,250,000  in  notes 
receivable.  The  creditors  were  cleverly  protected,  how- 
ever, through  the  borrower's  agreement  to  deposit  cash 
monthly  with  the  trustee  assuring  repayment  at  the  rate 
of  $100,000  annually.  Moreover,  quarter^  statements 
were  rendered  to  the  trustee  and  his  advice  invited  as 
an  extra  assurance  of  continued  credit  and  prosperity 
for  the  borrower. 

Tangible  properties  represent,  not  merely  (1)  some- 
thing which  can  be  sold  outright,  but  (2)  something 
which  can  be  mortgaged  to  lenders,  or  (3)  something  the 
use  of  which  can  either  be  sold  or  rented  for  the  period 
of  financial  need.  In  this  analysis  lies  the  secret  of  suc- 
cess in  securing  funds  on  property  as  a  basis. 

A  Dakota  merchant  sublet  the  basement  of  his  store 
at  a  figure  which  enabled  him  to  finance  an  advance  in 
the  price  of  his  own  lease  and  prevent  a  competitor  from 
crowding  him  out.  A  merchant,  seeking  a  bank  loan, 
clinched  his  case  by  drawing  from  his  pocket  a  contract 
designating  him  as  the  official  supplier  for  a  chain  of 
railway  construction  camps.  A  Southern  manufacturer 
raised  funds  by  renting  warehouse  facilities  to  a  furni- 
ture dealer  who  happened  to  be  crowded  for  storage 
room.  Whatever  your  holdings,  reservations  or  invest- 
ments, it  is  almost  certain  that  if  they  are  tangible 
they  have  a  definite  value  somewhere. 

Whether  you  are  subletting  floor  space,  disposing  of 
an  idle  machine  or  negotiating  a  loan  on  merchandise 


50  HOW  TO  USE  CEEDIT 

inventory,  the  financial  problem  of  making  the  most  of 
your  transferable  holdings  is  essentially  a  sales  problem. 
The  executive  who  uses  them  with  best  results  (1)  takes 
a  salesmen's  advantage  of  the  time  element,  (2)  finds 
the  best  market  in  which  to  offer  his  commodity  or 
security,  (3)  cleverly  arouses  the  possible  competition 
in  that  market  for  that  commodity,  (4)  excites  a  de- 
sire not  only  for  what  he  has  to  offer  today,  but  for 
his  financial  patronage  month  after  month. 

The  shrewd  manager  of  finance,  like  the  successful 
salesman,  looks  ahead,  studies  the  money  market,  offers 
his  securities  or  holdings  when  times  are  favorable  and 
even  buys  his  reserve  stocks  and  bonds  under  a  plan 
which  makes  them  available  at  the  times  when  other  re- 
sources fail. 

There  is  an  art,  too,  in  checking  over  all  the  different 
individuals,  money  brokers  and  sources  of  funds  to  de- 
termine which  one  places  the  highest  value  on  the  prop- 
erty you  offer.  A  young  grocer  in  a  Columbia  River 
town  was  in  need  of  $6,000  for  a  grocery  which  he  had 
established  in  a  neighboring  city;  yet  there  seemed  no 
way  to  raise  the  money  except  to  sell  at  a  sacrifice  his 
home  store  in  the  sluggish  village.  As  he  checked  over 
all  the  possible  buyers  for  the  unattractive  small  town 
business,  however,  he  hit  upon  one  man  of  modest  ambi- 
tions and  capital,  who,  being  bound  to  the  town  by  all 
the  ties  of  habit  and  family,  might  snap  up  the  pur- 
chase. As  it  proved,  the  finding  of  the  one  live  market 
for  his  offering  enabled  the  young  grocer  to  close  an 
advantageous  sale. 

The  choice  of  lenders,  or  "buyers"  for  the  invest- 
ments you  offer,  must  be  considered  in  view  of  the  se- 
curities you  propose  just  as  the  grocer  narrowed  down 
his  selling  campaign  to  the  one  best  buyer  for  his  store. 


FINANCING  ON  PROPERTY  51 

Commercial  banks  demand  ready  money  and  quick  as- 
sets; national  banks  are  prohibited  from  loaning  upon 
real  estate.  The  man  who  comes  into  the  market  for 
a  mortgage  loan  or  with  slow  assets  as  security,  must 
apply  to  the  individual,  to  the  money  broker,  to  the 
state  bank  or  trust  company.  With  every  class  of  prop- 
erty and  paper,  like  facts  are  significant.  The  man  who 
expects  to  finance  cleverly,  studies  the  money  market 
before  he  enters  it. 

How  Salesmanship  in  the  Presentation  of  Your  Re- 
quest and  Security  Operates  to  Get  Loans 

A  seasoned  business  man  was  indignant  because  he 
failed  to  secure  a  bank  loan  of  $25,000  for  the  summer, 
upon  a  security  of  ten  times  that  amount.  He  could 
not  explain  the  refusal  he  had  met. 

"But  do  you  understand/'  inquired  a  friendly  finan- 
cier, "that  money  is  tight  just  now  and  that  banks 
are  busy  taking  care  of  their  regular  customers?  Ap- 
plications for  bank  loans  are  listed  and  come  before  the 
directors  or  some  official  for  decision.  All  or  a  few 
loans  may  be  granted,  depending  upon  the  attractive- 
ness of  the  investments  and  upon  whether  or  not  the 
bank  has  a  large  balance  to  put  out  at  interest.  First 
favors  go  to  regular  and  substantial  depositors,  then  to 
smaller  depositors  and  finally  to  outsiders  in  the  order 
of  the  security  they  offer,  the  interest  they  bid  for  the 
purchase  of  ready  money  and  the  future  patronage  they 
can  award  the  bank.  What  you  have  failed  to  do  is  to 
understand  that  money  lenders  vie  with  one  another  to 
select  the  most  attractive  holdings.  You  have  not 
studied  the  market  for  your  borrowings,  nor  put  sales- 
manship into  your  proposition." 

Negotiable  paper  is  usually  sold  through  brokers,  but 


52  HOW  TO  USE  CREDIT 

depends  for  salability  upon  similar  considerations.  The 
clever  borrower  seeks  funds  when  the  lender's  balance 
for  investment  is  large;  his  application  is  attractive  in 
proportion  as  it  bears  signatures  of  known  standing,  as 
it  offers  good  interest,  as  its  securities,  in  the  way  of 
warehouse  receipts,  merchandise  stocks,  and  eo  on,  are 
high  grade.  The  purchase  of  a  mortgage  involves  ex- 
pert investigation  of  the  property ;  proof  that  it  includes 
an  occupied  and  income-producing  structure ;  a  decision, 
in  the  case  of  a  city  bank,  by  a  loan  committee  of  capi- 
talists, real  estate  investors  and  other  experts,  touching 
the  value  of  the  property,  improvements,  condition  of 
buildings,  materials  used  and  whether  fireproof,  insur- 
ance conditions,  guarantee  of  title,  and  finally,  whether 
the  loan  total  is  sufficiently  under  the  appraised  value 
of  the  security. 

With  the  country  merchant  or  the  head  of  a  little 
factory,  the  negotiation  of  a  loan  may  seem  informal, 
but  will  follow  these  same  fundamental  lines.  At  no 
point  do  set  rules  govern.  The  transaction  of  getting 
money  on  security  is  a  genuine  sale.  The  money  lender 
buys  what  offers  him  the  greatest  advantage.  Securi- 
ties bring  their  maximum  only  when  offered  at  the 
right  time  to  the  best  market  and  with  the  most  at- 
tractive setting. 

Salesmanship  in  financing  upoa  material  properties 
has  come  to  demand  that  you  take  the  money  lender's 
motives,  precautions  and  wishes  frankly  into  account; 
that  you  make  the  facts  of  your  presentation  full  and 
flawless ;  that  you  demonstrate  insurance  protection,  title 
guarantee  and  every  factor  that  makes  for  security  or 
carries  persuasion  with  the  money  lender;  that  you  em: 
phasize  the  "you"  interests  which  have  led  you  to  bring 
your  security  to  this  particular  market ;  that  you  appea' 


FINANCING  ON  PROPERTY  53 

to  the  underlying  desires,  with  argument,  proof,  guar- 
antee and  inducement,  just  as  a  clever  salesman  gains 
for  his  goods  the  highest  regard  and  the  readiness  to 
pay  a  price  which  spells  profits. 

A  steel  company  faced  an  important  demand  for  cash. 
The  president  came  before  his  executives  and  said: 

"Any  staple,  such  as  cotton,  wheat,  corn,  coal,  rep- 
resents value  of  as  genuine  a  sort  as  commerce  offers. 
We  have  a  half-dozen  piles  of  iron  ore  on  the  river 
front.  We  cannot  show  warehouse  receipts,  but  I  am 
going  down  to  the  bank  and  invite  my  friends  there 
to  send  out  a  watchman  with  authority  to  guard  ore 
piles  Numbers  4  and  6  as  the  basis  of  a  loan  to  meet 
our  needs.  He  will  have  authority  to  check  weights 
as  the  ore  is  used,  in  order  to  see  that  we  pay  back 
the  money  more  rapidly  than  we  use  up  the  security.'' 

The  manufacturer  went  to  his  banker,  presented  his 
case  frankly,  hinted  at  the  value  of  his  account  to  the 
bank,  offered  an  extra  half  per  cent  interest  and  sug- 
gested the  ore  piles  as  security.  The  loan  was  made. 

In  every  business,  there  are  such  possibilities  of  find- 
ing a  basis  in  fixed  assets,  in  materials  or  in  other 
securities  for  cash  sales  or  money  loans.  With  a  sales- 
man's cleverness  in  knowing  market  rules  and  condi- 
tions, in  appreciating  values,  choosing  times  and  locat- 
ing prospects,  there  is  no  simpler  rule  of  finance  than 
to  offer,  as  a  final  value  or  as  security,  the  tangible 
properties  which  best  assure  the  buyer  or  lender  a  full 
equivalent  for  his  money. 


CHAPTER  VII 

Points  That  Win  the  Banker  and 
Credit  Man 

FACTS  are  the  basis  of  every  business  transaction. 
"Give  me  the  facts,"  says  the  executive  to  whom 
you  are  presenting  a  proposition,  whether  you  are  seek- 
ing a  loan,  applying  for  a  position,  selling  goods  or  mak- 
ing a  complaint. 

Nowhere  are  facts  more  important,  more  requisite, 
more  self-sufficing  than  in  securing  credit.  Present  all 
'  the  facts  of  your  case. 

The  position  of  the  banker,  like  that  of  a  lawyer,  is 
a  position  of  trust.  If  the  banker  is  engaged  in  a  com- 
peting line  of  business  or  is  connected  with  competing 
firms,  it  is  impossible  to  submit  details  with  complete 
frankness.  But  you  should  avoid  the  difficulty  by  your 
choice  of  banking  connections. 

It  is  not  only  necessary  in  most  cases  to  state  the 
essential  facts  of  your  business,  but  it  is  good  policy  to 
give  them  on  your  own  initiative.  Suspicion,  deception, 
even  an  appearance  of  concealment  are  antagonistic  to 
credit.  In  large  banks  methods  of  obtaining  informa- 
tion about  borrowers  have  been  reduced  to  a  complete 
and  efficient  system.  Mercantile  reports,  individual 
"Aatements,  cooperative  trade  clearing  house  reports — 

54 


CEEDIT  POINTS  55 

these  mediums  of  obtaining  information  about  you  are 
used  by  all  credit  men.  The  efficiency  of  the  investi- 
gations is  a  reason  in  itself  for  the  exercise  of  both 
frankness  and  veracity  in  your  credit  applications. 

A  manufacturer  in  a  small  Illinois  city  went  to  a 
large  bank  in  Chicago  to  secure  a  loan.  In  the  past 
he  had  simply  gone  to  his  local  banker  and  said :  *  '  John, 
I  want  $5,000  for  sixty  days."  The  only  ceremony 
attached  to  borrowing  was  the  signing  of  a  promissory 
note.  The  banker  had  the  facts  without  asking. 

At  the  city  bank  the  first  sheet  of  the  statement  he 
was  required  to  fill  out  offended  the  manufacturer.  "Why 
should  he  reveal  to  the  bank  all  the  secrets  of  his  profits, 
sales  and  expenses?  Why  should  he  be  required  to  go 
into  ancient  history  and  tell  how  he  started,  how  he 
got  his  capital  and  how  much  money  he  had  drawn  out 
of  the  business  every  year  ?  Some  of  the  questions  were 
even  embarrassing.  There  were  items  of  contingent  lia- 
bilities, notes  he  had  endorsed  for  friends,  that  he  con- 
sidered his  personal  affair  and  not  connected  at  all  with 
this  proposed  loan.  Some  of  the  questions  he  could  not 
answer  conveniently.  He  left  the  spaces  blank. 

Next  day  a  diplomatic  and  business-like  man  called 
and  introduced  himself  as  Mr.  Brown  of  the  Credit  In- 
formation Bureau.  With  the  first  question  he  grew 
personal. 

4 'You  are  married,  I  believe?"  he  asked. 

" Fifteen  years,"  retorted  the  manufacturer. 

"More  than  once?"  The  credit  man  was  polite  and 
smiling. 

"Yes,  twice." 

"And  how  much  of  a  family?" 

Other  questions  followed  along  the  same  lines,  even 
concerning  the  amount  of  his  household  expenses.  The 


56  HOW  TO  USE  CREDIT 

credit  man  then  went  to  outside  sources  for  facts  he 
could  not  get  in  the  interview. :  He  found  out  the  busi- 
ness hours  the  manufacturer  kept,  his  amusements,  his 
habits.  There  was  nothing  startling  about  the  report. 
The  bank  would  have  considered  him  a  good  risk  had 
not  its  credit  department  been  afraid  of  his  secretive- 
ness.  The  loan  was  refused. 

If  you  try  to  hide  the  facts  of  your  business  or  to 
misrepresent  them  the  weakness  that-  is  concealed  will 
almost  inevitably  come  to  light.  The  best  plan  is  to 
make  a  clean  breast  of  it.  You  have  a  chance  then  of 
securing  a  loan  because  of  your  frankness  and  integ- 
rity. 

What  Information  Counts  Most  with  the  Banker  and 
Supply  House  Credit  Man 

The  first  information  the  banker  or  credit  man  wants 
is  about  your  character.  Have  you  always  paid  your 
debts  and  done  so  in  a  prompt  and  business-like  way? 
Do  you  keep  your  promises?  What  is  your  experience 
and  what  success  have  you  had? 

What  the  president  and  cashier  formerly  carried  in 
their  heads,  the  credit  department  of  a  bank  or  supply 
house  now  carries  in  its  files,  with  much  more  that 
seems  impertinent  to  the  old  school  of  business. 

A  manufacturing  house,  established  eighteen  months, 
doing  a  good  business,  desired  to  make  its  first  loan. 
Its  chief  official  made  his  application  in  person  at  the 
president's  office.  With  some  pride  he  exhibited  a  se- 
ries of  photographs  showing  the  plant  exterior  and 
interior. 

The  banker  fumbled  the  photographs  and  compli- 
mented their  artistic  finish,  then  he  tossed  them  aside. 

"Photographs  do  not  represent  the  best  security/'  he 


CREDIT  POINTS 


N 

s 

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. 

I 

i 

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riy  aod  How  Valued  

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ether  Actual  Inventory. 
le,  by  Whom  Made  and 
ccfs  and  Bills  Rec.  Are 
rial  Dalance  and  if  Same 

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Bills  Payable  for  Murrhin  Jts 
Bills  Psysble  to  Own  Banks 
Bitli  Payable  for  Paper  Sold 

i 

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Deposits  of  Moneys  with  t 
Interest  on  Bonded  Debt  _ 
Bonded  Debt 

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Chattel  MrtrtOTBM 

Other  Liabilities  .  and  of  Wti 
Total  Liabilities 

ii  jl 

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utttanding  ,  . 

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For  the  purpose  of  procuring  credit,  from 
we  furnish  the  following  as  being  a  fair  ao 

s 
1 

j 

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1  Bills  Receivtble.Coud.  Pug  from  Custome 
Accounts  Receivable.  Good.  Due 

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t    - 

II 

J 

1  Other  Quick  Assets,  and  of  What  Compos. 

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1 

Bills  Rec'ble,  from  Officers  and  Stockhold 
Accounto  Rec'ble  from  Offkers  and 

Trvf.1 

CooUngen,  Liability  jA«on 
Specify  Any  of  Above  Assets  Pledged  as 
Specify  Aay  of  Above  Liabilities  Secured 

Amount  o».  Annual  Business  , 
losurance  C.rried  on  MercharuJise  

g-3 


58  HOW  TO  USE  CREDIT 

said.  "We  do  not  loan  on  real  estate  or  on  factory 
equipment.  Here  is  what  we  shall  have  to  ask  for: 
(1)  a  statement  showing  what  you  have  done  in  the 
past  six  months;  (2)  a  list  of  your  accounts  receivable 
with  all  information  you  can  furnish  concerning  the 
firms  that  owe  you  money;  (3)  facts  about  yourself, 
your  capital,  stockholders,  officers,  stocks  of  goods,  or- 
ganization, system  of  accounts  and  cost  keeping,  insur- 
ance, advertising,  buying  and  sales  organization." 

The  manufacturer  went  away  with  an  entirely  dif- 
ferent viewpoint.  He  made  up  a  list  of  his  accounts 
receivable.  On  every  big  account  he  gave  the  rating 
and  financial  condition  of  the  concern,  showed  how  much 
they  owed,  how  long  the  account  had  run,  the  average 
time  in  which  this  firm  had  paid  before. 

He  proved  that  his  customers  were  mostly  solid  con- 
cerns who  paid  on  long  time  but  regularly.  He  showed 
that  his  accounts  payable  were  more  than  covered  by 
the  raw  material  at  his  plant.  Then  he  explained  to 
the  banker  his  organization,  his  various  production  units, 
his  selling  plan ;  he  pointed  out  his  costs,  his  small  sell- 
ing expense  and  his  safe  margin  of  profit.  When  the 
banker  had  this  information  he  was  quite  ready  to  make 
the  loan. 

The  information  demanded  by  the  supply  house  credit 
man  is  no  less  complete  and  exacting  than  that  required 
by  the  banker.  Whether  you  are  buying  nails  or  ce- 
ment, fruits,  drugs,  or  raw  material,  such  as  steel,  iron 
ore  or  cotton,  the  same  facts  concerning  personality, 
condition  of  business  and  assets  control  the  decision. 

In  this  chapter  is  shown  the  blank  required  to  be 
filled  out  by  every  applicant  for  a  loan  at  one  large  city 
bank.  This  statement  makes  you  dig  down  to  the  blunt 
reality.  In  country  banks  the  credit  information  is 


CREDIT  POINTS 


59 


more  a  matter  of  general  knowledge  and  is  obtained 
with  less  formality.  But  in  both  cases  the  demands  are 
the  same. 

Items  That  Should  Have  Prominence  in  the  State- 
ment of  Your  Business 

The  details  of  the  information  wanted  vary  to  a  cer- 
tain extent.  Some  banks  place  emphasis  on  all  facts 
concerning  ability  and  integrity,  while  other  banks  em- 
phasize assets.  What  your  statement  should  show  de- 
pends largely  upon  the  kind  and  extent  of  your  busi- 


[  1                        Habits                       j 

.                      _. 

[                     Associates                    | 

H  —  T" 

-  1  Honesty  | 
1                       Frankness                    ] 

1    •      (      Co-operation  with  Creditors     | 

1                 Age  and  Health                ] 

1                      Education                     j 

1                Ability               1  .,—  . 

1       Income  by  Personal  Effort       J 

1              Business  Experience           ] 

Personality  Factors 

'  1        Personal  Resourcefulness 

Underlying  Credit 

1  1      Promptness  in  Paying  Debts      | 
1       Record  of  Success  or  Failure       | 
[  Recommendations  of  Employers  ] 

1    Business  Reputation    1    »  • 

1                       Courtesy                     ~j 
1                Progressiveness              ~j 

I          |        Profits  on  Capital  Invested      J 

|  1                       Habits                         [ 

1            Personal  Expenditure           j 

1       Standing  in  the  Community   ~] 

No  security  exists  which  does  not  suffer  fluctuations  in  value.     A  well-balanced  and 
powerful  personality,  favorable  in  all  the  details  here  listed,  stands  very  high  in  the  es- 
timation of  men  who  offer  credit 

ness.    A  corporation  statement  should  comply  with  the 
following  requirements : 

1.  It  should  be  made  out  complete  in  detail  and  pre- 
ferably certified  by  a  public  accountant. 

2.  It  should  take  up   capital  stock,  preferred  and 


60  HOW  TO  USE  CREDIT 

common.  It  should  give  details  concerning  history, 
ownership,  legal  aspects  and  dividend  policy,  and  should 
show  the  surplus  belonging  to  the  shareholders, 

3.  It  should  include  a  series  of  inventory  tables  giv- 
ing merchandise,  prices,  real  estate  values,  accounts  and 
bills  receivable  and  payable. 

4.  It  should  give  detailed  tables  of  income  and  ex- 
pense; also  the  annual  and  average  profits. 

5.  It  should  contain  a  list  of  creditors,  with  amounts 
and  dates  due,  and  the   names  of  the  officers  of  the 
important  corporations  to  whom  money  must  be  paid. 

6.  It  should  include  a  list  of  the  amounts  of  insur- 
ance carried  in  different  companies. 

7.  Individual  records  of  the  applicant's  officers,  in- 
cluding age,  salary,  business  record,  duties,  life  insur- 
ance  payable   to   the   company,   liabilities,   outside   in- 
terests, health  and  education  should  also  be  shown. 

The  statement  of  a  small  manufacturer,  merchant  or 
professional  man  is  less  complicated.  Any  statement, 
however,  should  show  in  particular  the  record  for  the 
past  six  months ;  accounts  receivable ;  accounts  payable ; 
capital,  stockholders,  officers,  stocks  of  goods,  organiza- 
tion, insurance,  together  with  any  significant  facts  that 
apply  to  the  particular  business.  Upon  such  a  basis, 
financial  accommodation  may  be  assured  to  the  maxi- 
mum of  good  business  practice. 


IT   is   not   prudent  either  from   the 
standpoint  of  the  borrower  or  the 
bank  to  have  the  bank  supply  money 
for  investment  in  a  plant  or  in  real 
estate.  — George  E.  Roberts 


CHAPTER  VIII 

How  to  Build  a  Reputation  That 
Assures  Credit 

ESTABLISH  a  credit  standing! 
No  concern  has  enough  money  to  escape  consid- 
eration of  this  question.  Too  much  money  in  a  business 
means  little  or  no  profit  from  the  investment.  Too 
much  credit  is  unheard  of,  except  where  the  privilege 
is  wrongfully  used,  and  then  credit  is  soon  lost  alto- 
gether. 

You  should  spare  no  pains  to  prove  your  stability  to 
your  creditors.  Use  diplomacy;  use  every  honorable 
method  within  reach  to  have  credit  brought  to  you.  Do 
business  in  so  progressive  a  manner  that  you  will  be 
asked  to  accept  credit. 

In  building  up  your  credit  standing,  you  should  un- 
derstand the  importance  of  little  details,  and  make  con- 
scious efforts  to  show  up  those  that  are  of  value.  Con- 
sider first,  the  importance  of  superficial  appearances  of 
prosperity  and  strength.  Small  creditors,  local  trades- 
men and  those  who  supply  the  everyday  necessities  of 
office  and  store  especially  rely  upon  the  prosperous  man- 
ner and  appearance  of  the  man  with  whom  they  deal. 

An  eastern  concern  decided  to  start  a  branch  in  an 
Arkansas  city,  The  firm  was  developiug  fast  and  a 

61 


62  HOW  TO  USE  CREDIT 

full  line  of  credit  was  always  in  use.  There  was  great 
temptation  to  economize  on  office  rent  and  fixtures.  The 
firm  reasoned,  however,  that  especially  from  a  credit 
standpoint,  retrenchment  here  would  be  poor  economy. 
The  offices  finally  chosen  were  in  a  building  where  sev- 
eral powerful  concerns  were  located.  The  fittings  of 
the  office,  as  well  as  the  location,  implied  such  prosperity 
that  small  creditors  granted  accommodation  eagerly. 

Appearances  are  important.  A  mahogany  desk  has 
delayed  the  presentation  of  many  small  bills  and  a 
bird's-eye  view  of  "our  factory "  effectively  hung  where 
all  may  see,  will  often  extend  credit.  Back  of  appear- 
ances, however,  must  lie  the  solid,  consistent  business 
power  which  never  fails  of  obligations  and  integrity. 

Building   Up  a  Credit  Standing  through  Frankness 
in  Dealing  with  Creditors 

Especially  in  a  new  business  absolute  frankness  is  a 
requisite  of  credit.  Show  your  creditors  facts  concern- 
ing the  condition  and  prosperity  of  your  business;  tell 
them  why  you  need  long  time;  explain  to  them  exactly 
the  basis  on  which  you  buy  and  sell.  If  you  ask  for 
sixty  or  ninety  days'  time,  show  why  it  is  advisable 
to  have  the  money  for  that  period,  how  you  will  profit 
by  the  loan,  whence  you  have  the  future  income  to 
meet  your  bill. 

The  business  of  a  southern  manufacturer  has  grown 
very  fast  in  the  last  five  years  and  his  capital  has  never 
caught  up  with  his  needs,  but  the  credit  he  has  secured 
has  more  than  compensated  for  the  lack  of  capital. 
Whenever  he  asks  for  more  than  the  usual  thirty  days' 
time  he  explains  to  his  creditors  exactly  why.  He 
shows  that  the  purchase  on  which  time  is  sought  will 
not  bring  a  return  for  at  least  as  long  a  time  as  the 


BUILDING  A  CREDIT  REPUTATION         63 

credit  asked.  For  instance,  if  he  buys  material  whose 
processing  is  very  slow,  so  that  there  will  be  no  re- 
turn short  of  three  to  six  months,  he  asks  ninety  days. 
If  he  intends  to  put  out  a  new  line  upon  which  he  is 
going  to  give  his  customers  long  time — four  to  six 
months — he  asks  corresponding  credit.  This  shows  the 
creditor  that  he  is  supplying  money  only  for  temporary 
needs  or  opportunities,  and  it  also  impresses  him  with 
the  fairness  of  the  debtor. 

These  are  some  of  the  means  by  which  credit  may 
be  consciously  cultivated.  Credit  standing  is  being  de- 
veloped month  after  month  by  shrewd  merchants;  but 
will  not  grow  of  itself.  To  build  it  up  requires  daily 
attention  to  the  credit  and  other  management  factors  of 
your  business. 

How  You  May  Lose  Your  Credit  Standing  through 
Abuse  of  Credit 

Your  credit  established,  the  most  important  advice  is : 
Never  abuse  it.  Make  extraordinary  efforts  to  meet  just 
demands  at  the  time  you  have  set.  It  is  not  always 
possible  to  meet  a  bill  on  the  date  it  is  due  or  to  pay  a 
note  on  maturity,  but  never  let  these  payments  go  by 
default ;  do  not  wait  until  the  collector  is  at  your  cash- 
ier 's  window.  Foresee  and  foreplan. 

Management  regards  not  only  sales,  buying  and  ex- 
pense, but  also  accounting.  You  should  keep  a  record 
of  amounts  payable  so  that  you  will  have  an  absolute 
check  on  notes  due;  you  should  handle  disbursements 
to  take  care  of  these  amounts  before  everything.  With 
your  financial  condition  well  in  mind,  then,  if  you  can- 
not meet  a  note,  take  up  the  matter  with  your  creditor 
and  come  to  a  definite  arrangement  to  extend  the  note, 
to  give  new  notes  or  to  make  part  payments. 


64  HOW  TO  USE  CREDIT 

The  same  holds  true  of  open  accounts.  Settle  tie 
terms  on  which  you  buy  before  you  place  your  order, 
then  observe  these  terms.  Never  tell  a  collector  to  ' '  call 
tomorrow/'  or  that  you  will  ''send  a  check/'  when  ac- 
cording to  the  terms  of  the  sale,  payment  was  then  due. 
If  you  cannot  pay  a  bill  when  due,  say  so  at  once,  and 
either  set  a  definite  date  and  then  observe  it,  or  ask 
that  the  matter  be  taken  up  again  at  a  specified  time. 

In  regard  to  your  bank  balance,  conservative  bankers 
contend  that  twenty  per  cent,  of  the  amounts  of  your 
loans  should  be  kept  in  the  bank  as  a  non-interest  bal- 
ance. This  is  evidence  of  good  faith,  and  offers  a  fair 
margin  of  safety  to  the  bank.  By  maintaining  a  rea- 
sonable balance  rigorously,  your  credit  is  strengthened. 

When  you  deal  with  the  bank,  understand  and  respect 
the  rules  that  its  interests  make  necessary.  Do  not  ask 
for  accommodation  it  cannot  grant.  Comply,  on  your 
own  initiative,  with  all  the  reasonable  requirements  of 
your  creditors,  whether  you  are  dealing  with  banks, 
supply  houses,  or  private  investors. 

Business  Methods  by  Which  Shrewd  Financial  Heads 
Steadily  Strengthen  Credit  Reputation 

Merchant  and  factory  men  versed  in  finance  have 
worked  out  a  consistent  plan  of  credit  building.  Points 
of  business  policy  in  line  to  this  end  are : 

1.  To  submit  an  accurate  and  detailed  statement  of 
affairs  at  least  once  a  year  to  the  bank.  In  the  case 
of  a  manufacturing  concern,  or  any  large  company,  the 
statement  is  best  made  by  a  reputable  firm  of  certified 
public  accountants.  It  shows  all  the  essential  details  of 
the  business,  disclosing  losses  from  bad  debts,  contingent 
liabilities,  the  ratio  of  expenses  and  profits,  the  gross 
volume  of  business. 


BUILDING  A  CREDIT  REPUTATION 


2.  To  fix  the  maturity  of  your  obligations  so  that 
you  can  meet  them  promptly  when  due;  neither  to  ask 
nor  to  expect  to  borrow  continuously;  in  so  far  as  pos- 
sible, to  maintain  balances  on  deposit  in  reasonable  pro- 
portion to  the  credit  sought. 


_J  Completeness  and  Veracity  in  Statements 


Frankness  toward*  Creditors 


Proportion  between  Balances  and  Credit 


By  Observance  of] [  Creditors'  Interests 


Personal  Relations  with  Creditors 


Obligations  Due 


Creditors'  Regard  for  Certified  Reports 


By  Avoidance  of 


Continuous  Borrowing 


Overdrawing 


Contingent  Obligations 


.Payment  Evasions 


Credit  Abuses 


Delays  in  Payment 


The  credit  reputation  of  many  experienced  business  men  is  a  powerful  financial  tool  and 
an  important  asset  in  times  of  money  need.     Such  a  reputation  is  the  result  of  unfail- 
ing adherence  to  the  principles  here  outlined 

3.  To  avoid  overdrawing  your  account.    When  it  be- 
comes necessary  in  emergencies  to  do  this,   the  over- 
draft can  be  arranged  for  in  advance. 

4.  Never  to  give  checks  in  excess  of  your  balances, 
even  with  the  understanding  that  they  are  not  to  be 
presented  until  tomorrow  or  next  week;  nor  to  send 
checks  to  distant  points  in  the  expectation  of  making 
them   good   before   they  are  presented.      Never  to   ex- 
change  checks  for  your  own  benefit  or  that  of  your 
friends;    never   to    lend   your   credit   in   any   manner, 
whether  by  the  indorsement  of  paper  or  by  going  upon 


66  HOW  TO  USE  CREDIT 

surety  bonds.    If  you  should  incur  such  obligations,  yoia 
should  at  once  inform  your  bank. 

5.  To  show  a  willingness,  in  your  dealings  with  the 
bank,  to  leave  it  a  fair  margin  of  profit.  It  is  wise 
to  make  your  account  as  valuable  as  possible  to  the 
bank,  to  cultivate  the  acquaintance  of  the  officers  per- 
sonally and  to  show  a  disposition  to  advance  its  in- 
terests in  every  fair  way. 

t  £.  Never  to  be  too  optimistic  on  the  one  hand,  nor 
enshrouded  in  gloom  on  the  other ;  to  conduct  your  busi- 
ness with  the  bank  in  a  quiet  and  business-like  manner. 

Remember  that  a  good  credit  standing  is  an  asset, 
and  only  proper  use  and  cultivation  covering  your  busi- 
ness career  in  its  entirety  will  develop  this  asset  to  its 
best. 


Confidence  before  Credit 

THE  cardinal  virtue  most  important 
in  the  establishment  of  credit  is 
veracity.  Veracity  or  truthfulness  car- 
ries with  it  by  implication  the  posses- 
sion of  certain  collateral  traits  which 
are  essential  to  business  success.  It 
cannot  fail  to  command  the  confidence 
of  the  banker,  without  whose  confi- 
dence no  business  man,  even  though 
possessed  of  abundant  tangible  proper- 
ty, may  hope  to  establish  and  main- 
tain a  permanent  basis  of  credit. 


Part  HI 


EMERGENCY  METHODS  OF 
FINANCING 


Resources  That  Count  in  Tight  Places 

BUSINESS  incapacity,  linked  with  abundant  capital, 
usually  goes  to  wreck.     But  resourcefulness  often 
wrenches  profits  from  financial  destitution,  and  practically 
assures  the  success  of  a  well-backed  enterprise. 

Every  business  has  certain  intangible  factors  which  your 
resourcefulness  should  fasten  upon  and  develop  into  unique 
assets.  Personality,  selling  ingenuity,  an  advertising 
test,  factory  inventiveness,  a  trade  mark,  a  trade  secret, 
a  neglected  opportunity  or  field,  the  possibility  of  definite 
profits  on  a  future  transaction  —  these  and  other  factors 
which  clever  business  men  are  continually  unearthing 
often  solve  the  situation  when  money  fails. 

The  man  who  starts  big  comes  to  failure  through  un- 
known —  unlearned  —  duties  and  problems.  He  has  never 
developed  those  final  assets  of  business  skill  and  knowledge 
upon  which  financial  success  is  most  easily  reared.  If  in 
mid-career  your  business  comes  to  a  tight  place,  therefore, 
look  back  at  the  years  of  business  expertness  you  have 
been  accumulating  —  look  about  at  the  productive  power 
your  enterprise  embodies.  These  are  assets  more  im- 
portant than  money  —  assets  which  can  not  be  bought. 

Even  the  enterprise  that  has  gone  down  in  failure  still 
has  these  assets.  Moreover,  it  knows  as  never  before 
that  certain  of  its  practices  must  be  changed.  Quick 
recovery  in  case  of  business  failure  —  growth  for  the  new 
enterprise  —  progress  for  the  hard  pressed  business,  all  de- 
pend upon  learning  from  mistakes  and  profiting  by  these 
invisible  and  intangible  assets,  even  more  than  upon  cap- 
italizing the  accepted  resources  of  finance. 


IIP 


iii: 


"HOW  TrO"  FINANCE  *  IN  EMERGENCIES 

*" 

~ 

Your  Ability 
Your  Experience 
Your  Technical  Knowledge 
Your  Business  Prospects  and 
Patented  Ideas                         V. 
Appeals  to  Private.  Business  and  Public"  •  t 
Interests 

Secure  Addi- 
tional Loans  or 
Investments 
Based  on 

Building 
-    on  Small     — 
Capital 

- 

Keeping  down  Fixed  Investment 
Quick  Turnover  of  Working  Capit 
Widest  Safe  Use  of  Credit 
Keeping  down  Expenditure  j 
Expanding  from  Profits 

Make  the 
-  Profit  Chances 
Count  by 

r 

Establish  a 
Credit 
Reputation 
through 

Attention  to  Personal  Standing 
Proof  of  Business  Progress 
Correct  Credit  Practice 

Tightening  Collections 
Closing  out  Stock 
Converting  Fixed  Capital 
Speeding  up  Sales  by  Schemes 
and  Advertising 
Reducing  Expenditure 
Stopping  Leaks 

Demonstrating  Business  Prospects 
Reforms  in  Management 
Offering  Further  Assets  as  Security 
Showing  Increased  Value  of  Assets 

Increase 
Income  by 

Handling 
—  Finances  in  — 
a  Pinch 

Close 

Get 

-      Extensions 
of  Credit  by 

—  ^ 

Showing  Creditors  Disadvantage  of 
Foreclosure 

remonstrating  Future  Prttlit  Chances 
to  Investors 
Playing  op  Interdependence  of  Interest* 

Interest  New 
Capital  by 

Raise 
-    More  Capital 
through 

- 

Use  of  Remaining  Credit 
Mutual  Interest  Appeal  to  Creditors 
New  Credit  on  Business  Prospects 
Sale  of  Partial  Control 

Assuring  Sufficient  Capital 
Restricting  Fixed  Investment 
Finding  an  Opening 
Building  Slowly 
Limiting  Credits 
Controlling  Expense 
AssuringQuick  Turnovers 
Providing  against  Contingencies 
Reforms  in  Management 

Conservative  Beginning 
Expanding  Gradually  and  from  Profits 
Keeping  to  a  Familiar  Field 
Indicating  Business  Experience  by 
Good  Management 
Demonstrating  Insight  and  Caution 
Acquired  through  Failure 

Building 
—     up  after     — 
Failure 

Avoid  Past 
Dangers  by 

•* 

Build  New 
-          Credit 
Reputation  by 

Under  stress  of  scant  capital  and  money  troubles,  it  becomes  necessary 
doubly  to  test  every  step  for  safety  and  profit.     The  correct  measures 

HIE: 


CHAPTER  IX 
Building  a  Business  on  Three  Figures 

CARLSON  had  five  hundred  dollars  and  an  idea  for 
a  kitchen  cabinet :  Seven  years  later  he  had  a  fifty- 
thousand-dollar  furniture  factory. 

Gates  was  a  clothing  salesman  who  had  less  than  one 
thousand  dollars.  He  invented  a  scheme  of  selling  cloth- 
ing at  a  dollar  down:  Within  ten  years  credit  to  the 
small  salaried  person  made  him  a  fortune. 

A  traveling  salesman  went  into  business  and  paid  cash 
for  small  lots  of  goods.  Low  prices  and  quick  turn- 
overs enabled  him  to  treble  his  capital  in  the  first  year. 
Seven  years  later  he  was  worth  a  hundred  thousand. 

A  printer  made  partners  of  his  chief  employees:  By 
the  deduction  of  small  payments  on  their  stock  from 
their  weekly  pay  envelopes  the  business  quadrupled  in 
two  years  because  of  expert  workmanship  thus  inter- 
ested. 

These  men  had  ideas — clever  schemes  or  points  of 
manufacturing  or  retailing  or  wholesaling — but  they 
would  still  have  failed  had  they  not  done  keen,  astute 
and  concentrated  financing. 

Peculiar  money  problems  come  to  the  man  who  wishes 
to  take  advantage  of  a  business  idea,  who  hopes  to  pro- 
tect himself  from  competition  and  to  build  up, rapidly, 


70  EMERGENCY  FINANCING 

yet  who  has  only  a  few  hundred  dollars  capital.  First 
of  all,  additional  capital  must  be  found — and  this  must 
usually  be  done  by  an  appeal  to  interest  or  confidence 
rather  than  upon  a  basis  of  securities.  Capitalizing  ex- 
perience, ability,  or  technical  knowledge  in  the  line  of 
the  proposed  work  is  one  method.  Borrowing  by  an' 
appeal  to  business  and  public  interests,  as  in  the  case 
of  the  man  whose  factory  is  an  important  aid  in  building 
up  the  town,  is  another  way  of  securing  temporary 
funds. 

Gilbert,  a  New  York  newspaper  man  who  made  a 
fortune  in  the  real  estate  business,  borrowed  on  his 
business  prospects. 

He  noticed  that  the  first  floor  of  a  desirable  busi- 
ness block  was  seldom  rented  because  of  the  forbidding, 
old-style  exterior.  He  paid  eight  hundred  dollars  for 
a  quarter's  rent  of  the  floor  and  secured  an  option 
for  a  ten-year  renewal  of  his  lease;  then  he  went  to 
an  architect,  had  a  new  store  front  designed  and  cut 
up  the  floor  into  seven  shops.  By  showing  the  blue 
prints  to  proprietors  of  small  stores,  he  secured  ten- 
ants before  the  work  of  remodelling  began.  Money 
borrowed  on  leases,  signed  by  reputable  firms,  paid  the 
contractors.  The  income  of  three  stores  paid  the  rent 
and  built  up  a  sinking  fund  covering  the  cost  of  re- 
modeling. The  rent  of  Gilbert's  four  remaining  stores 
was  net  profit,  and  in  ten  years  amounted  to  twenty- 
five  thousand  dollars.  With  this  as  a  basis,  he  advanced 
to  assured  success  in  real  estate  work. 

How  to  Get  a  Quick  Start  and  Make  Your  Money 
Count  on  Essentials 

The  standard  by  which  the  beginner  in  business  is 
measured  is 'the  rapidity  with  which  he  builds.  He  must 


SUCCESS  FROM  SMALL  CAPITAL     71 

make  every  profit  chance  count  without  departing  from 
a  plan  of  economy  and  wise  spending.  The  cardinal 
rules  which  have  built  up  the  small  business  conserva- 
tively but  quickly,  are: 

1.  Getting  an  economical  start  by  keeping  down  the 
fixed  investment. 

2.  Guarding  the  income  by  eliminating  credits  and 
watching  collections. 

3.  Making  capital  grow  by  a  shrewd  system  of  quick 
turnovers  of  money  invested,  and  by  reinvesting  profits. 

4.  Protecting  finances  doubly  well  by  avoiding  every 
possibility  of  a  difficult  position  until  sure  of  capital  and 
ability. 

Eents,  leases  and  real  estate  buying  questions  often 
mark  the  line  between  profit  and  loss.  Two  Philadel- 
phia young  men  hesitated  about  entering  the  wholesale 
grocery  business  in  their  city  on  account  of  high  rents 
in  the  downtown  section.  When  almost  persuaded  to 
postpone  their  plans,  one  of  them  noted  the  business 
activity  in  an  outlying  district  and  conceived  the  idea 
of  establishing  the  store  in  that  locality.  The  rent  was 
one-fifth  that  of  the  downtown  location,,  but  the  idea 
of  establishing  the  wholesale  store  in  the  suburb  seemed 
revolutionary.  The  scheme  was  tried,  however,  and  the 
partners  met  with  instant  success.  Hundreds  of  retail 
grocers  flocked  to  them  to  save  the  long  hauL  The  two 
partners  had  substituted  special  service  for  location  and 
the  difference  in  rent  made  their  first  year  safely  prof- 
itable. 

Limiting  credits  and  watching  collections  must  be  a 
prime  consideration  of  the  small  proprietor.  External 
appearances  often  indicate  the  prosperity  of  the  man 
who  asks  for  credit,  but  his  prosperity  is  by  no  means 
an  indication  of  his  willingness  to  pay.  Look  up  un- 


72  EMERGENCY  FINANCING 

failingly  the  credit  standing  of  the  man  who  proposes 
to  postpone  payment.  If  his  record  is  bad,  refuse  him. 
The  customer  lost  will  be  dollars  saved. 

For  the  small  manufacturer  the  cash  on  delivery  sys- 
tem, if  diplomatically  carried  out,  lessens  collection  costs 
and  insures  payment.  A  printer  on  the  Pacific  coast 
kept  his  shop  busy  on  orders  which  seldom  amounted 
to  more  than  five  dollars.  The  expense  of  collecting 
small  bills  was  heavy  and  creditors  frequently  passed 
the  printer's  account  because  of  its  insignificance.  To 
get  money  quickly  the  printer  followed  a  scheme  of 
attaching  a  bill  to  each  order  of  job  work  when  it  was 
wrapped  for  delivery.  The  amount  due  was  so  small 
that  it  could  be  settled  without  draining  the  cash 
drawer  and  the  full  payment  was  generally  brought 
back  by  the  delivery  boy. 

(Every  small  business  which  has  achieved  success  has 
followed  some  principle  of  quick  turnover  of  capital.  A 
Chicago  salesman  who  entered  the  dry  goods  business, 
adopted  a  plan  of  selling  out  all  slow-moving  stock  to 
west  side  peddlers  every  Sunday  morning.  The  cash 
paid  for  the  job  lots  of  goods  earned  a  profit  the  next 
week  in  the  business. 

The  general  manager  of  a  chain  of  retail  stores,  by 
a  scheme  of  turning  over  capital,  attained  affluence  in 
less  than  a  decade.  He  began  business  in  a  town  near 
Chicago  and  every  evening  ended  the  day  with  a  study 
of  his  stock.  Orders  mailed  or  telephoned  to  Chicago 
jobbers  kept  the  store  full  of  the  goods  which  were  in 
eager  demand.  Because  of  limited  buying  the  few 
4 ' stickers"  on  hand  represented  only  a  negligible  frac- 
tion of  his  small  capital.  While  small  orders  made  it 
impossible  to  get  the  lowest  prices,  this  loss  was  more 
than  counterbalanced  by  repeated  profits. 


SUCCESS  FROM  SMALL  CAPITAL     73 

"Buy  light,"  is  the  first  rule  laid  down  by  this  mer- 
chant. "Find,  by  watching  the  way  goods  move  over 
the  counter,  where  profits  lie.  Weekly,  or  even  daily 
orders  to  replenish  stock  are  better  than  shelves  crowded 
with  goods  that  look  like  sure  sellers  in  the  jobber's 
salesroom,  but  really  have  no  appeal  to  trade. 

"Watch  the  salary  list  also.  Payroll  expense  is  one 
of  the  heaviest  costs  of  a  business.  The  beginner  must 
allot  himself  a  frugal  salary  and  give  overtime  to  the 
selection  and  training  of  low-priced  but  promising  ap- 
plicants. 

"Brass  and  oak  and  mahogany  make  a  store  attract- 
ive, but  fixtures  are  not  the  first  essential  of  profits. 
Quick  turnover  of  goods  makes  for  fresh  stocks  and 
right  prices — the  ultimate  appeal  to  the  consumer." 

How  to  Minimize  Financial  Risks  and  Difficulties 
during  the  Infancy  of  Your  Enterprise 

Among  the  chief  causes  of  bankruptcy  are  insufficient 
capital,  incompetence,  inexperience,  unwise  credit,  fail- 
ure of  others,  extravagance  and  speculation — every  one 
a  plague  upon  the  small,  struggling  enterprise.  More 
than  half  the  chances  of  success  for  a  small  business 
depend  upon  its  admission  that  it  is  weak  financially 
and  must  protect  itself  in  every  fair  way  from  financial 
flurry  until  capital  and  stability  are  assured. 

Just  as  the  beginner  must  "build  to  windward"  in 
every  possible  manner  —  by  increasing  his  capital 
through  every  profit-making  plan,  by  laying  up  a  cash 
reserve  and  by  gaining  a  high  place  personally  in  the  re- 
gard of  creditors  and  customers,  so  he  must  rigidly  avoid 
and  insure  against  every  risk  and  contingency.  Short 
capital  is  another  term  for  undertaking  too  much — for 
incurring  liabilities  that  were  unwise — for  signing  notes 


74  EMERGENCY  FINANCING 

without  mathematical  assurance  that  the  funds  would 
come  in  to  meet  them.  Unwise  credit,  and  the  failure 
of  others,  brands  the  small  business  with  attempting  to 
take  the  same  risks  that  the  great,  established  enterprise 
finds  heavy.  The  little  businesses  that  have  grown  fast 
are  cash  stores.  "Let  the  big  shop  keep  its  vault  full 
of  bills  until  fashionable  customers  come  back  from 
summer  and  winter  trips/'  said  a  dry  goods  man;  "my 
capital  is  small  and  I  have  to  have  a  profit  on  it  five 
times  a  year  just  to  make  a  living." 

Extravagance  and  speculation,  with  incompetence  and 
inexperience,  come  under  the  same  heading,  of  risks  that 
might  have  been  avoided.  Just  as  the  farsighted  mer- 
chant protects  his  assets  at  the  start  by  liberal  insurance, 
so  before  he  launches  into  any  new  phase  of  his  business 
he  insures  himself  by  test  that  it  offers  an  excellent 
chance  for  profit. 

Hundreds  of  small  businesses  have  been  saved  by  test- 
ing out  contemplated  sidelines,  new  selling  plans,  new 
advertising  devices,  new  delivery  methods,  new  account- 
ing schemes  and  new  phases  of  the  problem  of  store  or 
factory  help.  Ignorance  of  this  ru1  j  caused  the  ruin  of 
a  western  clothier,  who,  after  getting  a  fair  start, 
planned  to  profit  by  dull  season  opportunities  which  a 
chance  salesman  described  to  him.  He  installed  a  sport- 
ing goods  department,  but  the  ability  which  had  made 
him  a  successful  clothier  did  not  adapt  itself  to  this  line 
and  he  failed.  Had  he  tested  his  idea  by  catching  "drop- 
in"  trade,  he  would  either  have  learned  his  mistake  at 
a  slight  risk,  or  would  have  acquired,  by  degrees,  the 
experience  which  insured  success. 

The  beginner  in  the  business  field  will  be  watched 
more  closely  than  he  realizes.  He  will  be  less  able  to 
bear  financial  strain  than  other  men,  but  more  certain 


SUCCESS  FROM  SMALL  CAPITAL  75 

to  suffer  it  whenever  he  takes  chances.  For  the  begin- 
ner, these  rules  have  been  laid  down  by  a  man  whose 
practical  success  has  covered  several  lines: 

' '  When  you  enter  business,  make  the  most  of  your 
fresh  point  of  view. 

' '  Reduce  each  problem  to  its  elements — reject  the  non- 
essential. 

"Make  swift  credits  the  basis  of  your  selling  plan. 
Make  your  collections,  not  your  banker,  carry  your  busi- 
ness. 

"After  good  goods,  service  is  the  first  essential  to  good 
trade." 

The  peculiar  responsibility  of  the  beginner  who  would 
seore  quick  success  may  be  summed  up  in  the  sentence : 
More  rigidly  than  any  established  business,  avoid  risks, 
enforce  economies,  make  personality  count  with  those 
about  you,  keep  the  fog  away  from  your  accounting  sys~ 
tern,  and,  as  far  as  possible,  let  no  financial  problem  get 
to  you  unforeseen.  These  principles,  linked  with  a  good 
proposition,  have  rarely  failed  of  success. 


Personality  in  Business 

PERSONALITY  is  the  chief  factor 
-*•  in  building  a  business,  because 
personal  power  is  the  strongest  bond 
between  men,  and  a  unified  organiza- 
tion is  chiefly  the  result  of  that  same 
power — personality. 

[ — George  H.  Barbour 


CHAPTER  X 
Handling  Finances  in  a  Pinch 

JONES,  a  clerk,  had  saved  some  money.  He  decided 
to  start  manufacturing  ice  cream  in  a  large  eastern 
city.  There  was  competition — fierce  competition — but 
he  had  a  plan  which  he  thought  would  insure  success. 
It  was  to  establish  a  reputation  for  absolute  purity,  a 
quality  which  recent  exposures  had  shown  to  be  strik- 
ingly absent  from  the  product  of  competing  firms. 

'Jones'  enterprise  was  successful  from  the  start.  His 
reputation  grew  fast.  His  name  alone  came  to  be  con- 
sidered a  guarantee.  The  business  so  exceeded  his  an- 
ticipation that,  although  he  was  an  unusually  hard- 
headed  business  man,  he  made  the  fatal  mistake  of  in- 
vesting too  much  in  machinery  and  fixed  improvements; 
that  is,  he  stretched  his  credit  too  far  for  slow  returns. 

The  cold  \veather  came  earlier  that  fall  than  usual. 
'Jones'  business  fell  off.  He  had  a  large  plant,  ma- 
chinery and  other  assets,  but  they  were  now  of  little 
value  as  security.  His  credit  situation  became  desperate, 
and  one  day  an  order  for  goods  failed  to  come.  Then 
came  a  period  of  emergency  financing  and  a  search  for 
credit. 

One  evening,  early  in  November,  he  reviewed  the  sit- 
uation with  his  wife. 


HANDLING  FINANCES  IN  A  PINCH  77 

* c  We  must  get  some  money, ' '  he  said,  ' '  or  our  business 
career  is  over.  But  I  don't  know  how  we  can  do  it.  I 
have  cashed  already  on  everything  I  have. ' ' 

'  '  Well,  try  Brooks.  Ask  him  what  our  trademark  is 
worth." 

"Brooks!  He  would  be  glad  to  celebrate  my  bank- 
ruptcy. ' ' 

"Brooks  knows  better  than  anyone  else  just  what  our 
business  is  worth.  Pie  would  give  a  good  deal  to  get  it. 
We  are  facing  bankruptcy.  He  knows  it  as  well  as  we 
do.  I  think  he  would  consent  to  a  loan  if  he  thought 
he  had  a  chance  to  get  our  business.  If  we  get  the 
money,  we  can  substitute  winter  catering  for  the  ice 
cream  we  eati't  sell.  We  can  use  our  reputation  that 
way." 

Brooks  was  surprised  one  day  to  see  his  chief  com- 
petitor enter  his  office. 

"We  had  a  hard  fight  last  summer,"  'Jones  began, 
"and,  as  you  know,  I'm  about  at  the  end  of  my  rope 
now.  But  I  have  a  proposition — lend  me  $8,000  until 
January  30th  at  eight  per  cent.  I  will  contract,  in  de- 
fault of  payment,  to  surrender  to  you  my  trademark, 
business  and  good  will.  If  I  pay,  you  lose  nothing.  If 
I  don't,  I  quit  the  business  and  you  head  the  list." 

Brooks  thought  a  while.  He  had  followed  Jones' 
financial  situation.  He  was  sure  that  Jones  could  not 
pay  the  note  when  due;  that  if  he  did  not  accept  the 
offer,  one  of  the  other  competitors  would,  and  that  he 
would  suffer  from  competition  again  as  he  had  during 
the  previous  summer.  He  knew  nothing  of  Jones'  plan 
to  substitute  a  new  line.  He  granted  the  loan. 

With  this  money,  Jones  adapted  his  places  of  busi- 
ness to  the  making  and  sale  of  refreshments  that  are 
in  demand  during  the  winter  months.  He  took  advan- 


78  EMERGENCY  FINANCING 

tage  of  his  reputation  and  the  Christmas  shopping  rush, 
Brooks'  loan  was  paid  when  due.  In  the  spring  the 
old  ice  cream  trade  revived.  Jones  paid  his  creditors. 
He  had  passed  the  danger  point. 

When  you  are  in  need  of  money,  remember  that  it  is 
not  what  you  think  your  assets  are  worth,  but  what 
others  think  they  are  worth,  that  counts.  You  may 
know  that  your  stock  is  valuable,  but  everyone  may  not. 
You  must  be  sure  that  the  person  you  ask  for  a  loan 
on  that  security  knows  something  about  it.  Regard  your 
assets  from  the  lender's  point  of  view.  It  is  the  only 
way  to  get  the  most  from  them. 

Temporary  financial  difficulties  are  due : 

1.  To  mismanagement. 

2.  To  lack  of  financial  knowledge. 

3.  To  general  financial  stringencies  or  panics. 

4.  To  crop  failures  or  other  natural  causes. 

5.  To  lack  of  sufficient  capital. 

Your  ability  to  deal  with  these  situations  depends 
upon  your  resourcefulness — your  ability  to  use  what  you 
have  to  best  advantage.  Tangible  assets  are  most  gen- 
erally appreciated.  Intangible  assets  are  often  over- 
looked. If  you  have  an  established  business,  good  will, 
future  prospects,  a  trademark,  life  insurance,  a  lease  on 
a  good  building,  personality,  character,  experience,  rep* 
utation,  publicity,  knowledge  of  markets — any  of  these 
may  save  your  business — and  the  list  is  far  from  ex- 
hausted. 

Haw  a   Temporary  Financial   Difficulty    Was   Over- 
come by  Increasing  Production 

A  large  piano  house  in  a  southern  city  daringly  en- 
larsed  its  business^  The.  owner  Itxad  alwava  financed 
tarerufiy.  On  this  occasion,  however,  he  admitted  that 


HANDLING  FINANCES  IN  A  PINCH  79 

he  had  extended  his  business  beyond  his  capital. 

One  day  he  and  some  of  his  associates  went  over  their 
situation.  They  made  a  complete  list  of  their  assets  and 
their  liabilities.  They  were  careful  to  note  just  how 
much  money  they  would  have  at  every  given  time.  In 
ninety  days,  several  large  notes  were  due.  They  saw 
that  they  would  not  have  enough  money  to  meet  their 
obligations. 

The  first  plan  suggested  was  to  increase  sales.  The 
firm  had,  however,  anticipated  high  sales  in  making  its 
calculations  and  it  could  not  see  how,  without  adopting 
some  entirely  new  schemes,  it  would  be  able  to  cover  the 
deficit. 

After  repeated  conferences  and  a  week  of  considera- 
tion, the  president  offered  a  solution. 

"I  have  a  plan,"  he  said.  "We'll  start  publishing 
music  again.  This  line  never  made  large  profits  and  had 
to  be  dropped  to  enable  us  to  care  for  our  heavy  trade 
in  instruments,  but  we  still  have  the  plates,  which 
caused  our  greatest  expense.  "We  can  use  some  of  them 
again,  and  the  margin  of  profit  should  thus  be  in- 
creased. We  have  a  list  of  high-grade  customers  who 
would  go  in  for  an  edition  de  luxe.  We  will  put  out 
advertising  and  selling  tests  at  once.  On  the  security 
of  the  first  successful  test,  we  can  get  two  volumes 
printed.  We  can  deliver  these  volumes  in  ninety  days 
and  get  one-half  of  the  cost  of  the  books  as  the  first 
payment.  The  profit  on  the  deal  will  cover  the  notes. 
When  the  second  payment  is  made,  we  will  have  enough 
money  to  pay  for  the  publishing  work." 

The  plan,  was  carefully  considered.  Test  advertise- 
ments were  run  in  leading  papers  so  that  the  firm  was 
able  to  estimate  the  demand  for  the  edition.  The  idea 
was  finally  adopted  and  proved  successful. 


80  EMERGENCY  FINANCING 

Again  in  this  case,  it  was  only  the  ability  of  one  of 
the  members  of  the  firm  to  understand  the  situation  and 
see  what  could  be  done  with  its  assets.  The  plates  had 
practically  no  value  as  security ;  not  a  cent  could  be  bor- 
rowed on  them.  But  there  was  a  way  to  realize  some- 
thing from  them ;  it  was  a  question  of  knowing  how. 

Personal  resourcefulness  is  only  a  name  for  business 
judgment  and  knowledge  of  financing.  It  is  not  a 
method  of  getting  capital  in  itself — capital  cannot  be 
conjured  out  of  the  air — it  means  ability  to  see  what 
you  have  and  ability  to  use  it. 

The  owner  of  a  canning  factory,  whose  business  was 
long  established  and  whose  name  represented  years  of 
trade  building,  faced  a  liquidation.  A  note  for  $5,000 
was  due.  The  company  could  neither  meet  its  obliga- 
tions nor  secure  an  extension. 

The  manufacturer  went  to  one  of  his  largest  creditors. 
He  spoke  without  any  appeal  to  sympathy.  He  presented 
a  purely  business  proposition. 

"I  have  a  note  coming  due  this  week,"  he  said.  "I 
will  either  have  to  meet  it  or  liquidate.  My  business 
has  got  into  a  bad  hole,  solely  through  that  failure  of  last 
year's  crops.  The  prospect  for  this  year  is  good.  My 
product  has  a  ready  market.  If  I  am  obliged  to  liqui- 
date, you  will  lose  as  well  as  I.  My  trade  is  established 
and  is  worth  more  than  all  liabilities,  but  it  is  about 
to  be  sacrificed. " 

The  creditor  made  a  complete  investigation  of  the 
business  of  the  factory.  He  arranged  for  a  conference 
with  several  other  creditors.  They  decided  to  have  the 
note  extended  to  avoid  the  liquidation. 

These  money  difficulties  were  overcome  by  ability  to 
cash  on  intangible  or  apparently  worthless  assets — a 
trade  name  coveted  by  a  competitor,  apparently  obsolete 


HANDLING  FINANCES  IN  A  PINCH  81 

property  in  the  form  of  electrotype  plates,  a  reputation 
and  future  selling  prospects  which  held  for  creditors 
a  warranty  of  payment. 

Many  firms  which  liquidate  are  solvent;  except  where 
the  business  has  been  grossly  mismanaged,  knowledge 
of  financing  could  almost  always  save  them.  There  is 
one  principle  which  holds  good  in  every  case.  It  con- 
cerns foresight  and  forethought,  making  the  most  of 
assets,  discovering  hidden  resources,  ability  to  appre- 
ciate the  value  these  assets  have  to  others,  or  in  what 
way  they  are  of  value,  and  ability  to  use  them  accord- 
ingly. 


Face  the  Crisis 

WHEN  the  crisis  has  come,  many 
a  business  man  has  lost  his  head 
and  gone  under,  although  courage,  re- 
sourcefulness, and  a  shrewd  plan  of  cam- 
paign would  have  carried  him  through. 
Resourcefulness  means  ability  in  dis- 
covering new  schemes  to  increase  in- 
come or  credit,  to  find  hidden  assets, 
and  to  capitalize  assets  to  advantage. 


CHAPTER  XI 

How  to  MaKe  a  Fresh  Start 
after  Failure 

WHEN  one  evening  the  final  formalities  in  bank- 
ruptcy had  been  concluded,  White,  a  machinery 
manufacturer  of  the  middle  west,  closed  his  desk,  put 
his  feet  on  the  table  and,  meditating,  lit  a  cigar. 

Bit  by  bit  he  put  together  the  story  of  the  past  eight 
months.  When  he  had  started,  he  had  invested  all  of 
his  money  in  his  factory.  Raw  goods  needed  were 
bought  on  credit  and  he  borrowed  from  banks  to  meet 
his  payroll.  His  liberal  terms  to  jobbers  had  flooded 
his  plant  with  orders.  Then,  in  spite  of  prospects  for  a 
money-making  future,  his  creditors  had  grown  uneasy 
and  closed  in.  White  attempted  to  collect  from  his 
customers  to  meet  his  bills,  but  only  a  few  of  them  were 
able  to  pay  in  less  than  sixty  days.  The  time  was 
twice  too  long.  He  had  assigned. 

"If  I  only  had  had  more  capital,"  he  mused;  but 
then  recalled  that  when  he  had  opened  for  business 
his  capital  had  seemed  ample.  "  Ample " — yes,  that 
was  exactly  the  trouble — his  supply  of  money  had 
«eemed  more  than  enough  to  meet  every  demand.  It 
had  seemed  unnecessary  to  limit  his  credits  either  in 
amount  or  in  time ;  indeed,  it  had  seemed  good  manage- 

82 


RECOVERING  FROM  FAILURE  83 

ment  to  give  extra  inducements  to  buyers  in  order  to 
fill  his  plant  with  orders  and  set  at  work  the  ample 
capital  in  hand. 

As  he  meditated,  his  mistake  in  financing  took  on 
these  definite  outlines,  and  reforms  which  would  have 
saved  the  business  sprang  to  his  mind. 

"I  could  make  good  if  I  were  back  three  months, " 
he  concluded.  "How  can  I  get  another  chance?" 

Before  he  left  the  office  that  night  he  had  sketched 
out  a  plan  of  reform  and  reorganization.  First,  he 
noted  down  the  main  factors  in  his  former  financial 
policy,  challenged  those  which  he  now  considered  dan- 
gerous, and  indicated  the  changes  he  had  determined 
upon.  Next  he  formulated  a  scheme  for  collecting  from 
his  slow  pay  customers.  These  evidences  of  having 
learned  from  his  severe  financial  experience  he  dete^ 
mined  to  put  before  his  bankers  and  creditors. 

At  the  end  of  three  weeks  he  had  collected  enough 
conclusively  to  demonstrate  the  genuine  value  of  his 
accounts  receivable.  This  showing,  together  with  his 
plan  of  reorganization  and  the  opportunity  to  secure 
his  exclusive  financial  patronage,  induced  one  bank  to 
advance  the  sums  White  needed  to  resume  business. 
The  bank  also  influenced  the  other  creditors  to  post- 
pone foreclosure  awaiting  the  outcome  of  the  new  ven- 
ture. Business  was  resumed,  and  by  gradual  growth, 
with  the  coooperation  of  the  bank  and  creditors, 
achieved  success.  White  had  solved  the  difficult  prob- 
lems of  finding  new  capital;  of  analyzing  his  failure 
and  correcting  his  mistake;  of  getting  a  new  credit 
chance  through  frank  acknowledgment  of  his  errors  and 
definite  evidence  that  he  had  profited  thereby;  and, 
finally,  of  building  upon  his  shattered  credit  a  new  and 
enduring  reputation  for  business  soundness. 


84  EMERGENCY  FINANCING 

Ninety-five  per  cent,  of  business  men  fail.  Of  eleven 
thousand  failures,  as  listed  by  one  of  the  large  mercan- 
tile agencies,  one-third  were  due  to  lack  of  capital.  In- 
competence, the  second  cause,  has  practically  the  same 
sum  of  failures  traceable  to  it.  Inexperience,  unwise 
credit,  competition,  fraud,  failure  of  others,  extrava- 
gance and  speculation  were  other  listed  reasons  why 
men  were  compelled  to  close  up  shop. 

A  majority  of  the  failures  step  back  to  the  ranks 
from  which  they  rose.  Many  of  them  might  have  re- 
sumed, had  they  analyzed  the  causes  of  their  downfall 
and  profited  by  the  experience.  Many  others  might 
have  rebuilt  in  months,  where  it  has  taken  years,  had 
they  learned  how  to  handle  every  financial  factor  with 
a  margin  of  safety,  but  with  expert  efficiency  in  profit 
making. 

Study  of  the  careers  that  have  built  success  on  bank- 
ruptcy is  a  financial  education.  Rogers,  a  factory  head, 
found  after  failure  that  his  product  had  cost  an  un- 
seen fifth  more  than  he  had  anticipated.  He  had  sold 
goods  steadily  at  a  loss.  After  challenging  and  tight- 
ening up  his  system  of  cost  accounting,  he  prospered. 
Steinfeldt,  a  hardware  retailer,  bought  a  carload  of 
stoves  too  expensive  for  his  trade.  Study  of  the  retail 
situation  and  reforms  in  his  buying  mended  the  fabric 
of  his  business.  Gregg,  a  cigar  man,  was  forced  out  of 
his  location  when  the  building  was  torn  down  to  give 
place  to  a  sky-scraper.  His  customers  failed  to  find 
him  in  his  new  location  and  he  was  forced  to  the  wall. 
By  taking  his  books  to  his  banker,  however,  by  dem- 
onstrating the  unavoidable  nature  of  his  handicap,  and 
by  producing  an  option  on  a  shop  in  the  new  building, 
he  got  sufficient  support  to  resume  business. 

Rebuilding  in  each  of  these  cases    was    a    problem 


RECOVERING  FROM  FAILURE  85 

(1)  of  financing;  (2)  of  good  business  management. 
Each  man  shrewdly  analyzed  the  causes  of  his  failure 
and  adopted  definite  plans  of  reform.  With  this  evi- 
dence that  they  had  learned,  that  they  had  the  persist- 
ency and  the  integrity  to  face  out  the  situation,  they 
took  up  the  problems  of  getting  more  money  and  re- 
establishing their  credit  standing. 

Where  to  Go  for  Money  with  Which  to  Try  Again 
after  Failure  in  Business 

How  may  the  bankrupt,  enfeebled  financially  by 
some  apparently  unavoidable  catastrophe  or  beaten 
down  by  the  results  of  his  own  faulty  financing,  get 
the  funds  and  the  chance  to  try  again?  Practice  indi- 
cates two  classes  of  resources  that  remain  after  failure: 

1.  Some  fragment  of  credit — some  confidence  which 
still  exists  in  the  mind  of  a  banker,  creditor  or  private 
investor. 

2.  New  credit  and  confidence  which  the  assignee  may 
establish  in  the  mind  of  someone  by  a  frank  presenta- 
tion  of  his  case,  indicating  an  unavoidable  cause   of 
downfall  or  mastery  of   the    business    forces  that  for- 
merly overpowered  him. 

White's  remaining  resource  was  the  interest  his  cred- 
itors had  in  him  because  they  believed  that  eventually 
they  would  get  their  money  back  and  because  his  col- 
lections strengthened  this  belief.  Gregg's  remaining 
credit  depended  upon  the  security  and  the  profit  chance 
represented  by  his  option  of  desirable  store  space  in 
the  new  building  on  his  old  corner. 

Credit  may  be  had  on  the  business  prospects  that  still 
remain  after  bankruptcy;  confidence  remaining  or  re- 
established in  the  minds  of  acquaintances  may  induce 
new  partners  or  stockholders  to  contribute  fresh  cap- 


86  EMERGENCY  FINANCING 

ital.  A  man  with  determination  rapidly  to  regain  foot- 
ing lost  by  bankruptcy  looks  for  those  whose  interests 
are  his  own  and  who  have  most  to  gain  or  lose  in  his 
success  or  failure.  The  problem  resembles  that  of  the 
salesman ;  to  make  your  application  for  additional  funds 
attractive  through  all  possible  profits,  appeals  and  con- 
cessions is  to  find  the  answer.  Even  when  obvious 
sources  of  money  have  been  tried  in  vain,  possibilities 
of  new  capital  may  be  located  by  checking  over  every 
individual  and  corporate  interest  concerned  with  your 
enterprise. 

Parker,  a  manufacturer  of  machinery  in  the  middle 
west,  confronted  a  problem  which,  viewed  from  any 
angle,  seemed  impossible.  Fire  destroyed  his  plant  and 
the  insurance  money,  which  under  ordinary  circum- 
stances might  have  been  sufficient,  was  eaten  into  by 
living  expenses  during  a  long  period  of  delay  in  re- 
building. 

Every  possible  item  of  credit  seemed  to  have  been 
exhausted  in  an  attempt  to  avert  the  crash.  When  he 
emerged  from  receivership  all  usual  sources  of  capital 
seemed  closed  to  him.  But  to  the  last  he  had  given 
employment  to  his  men,  and  they  now  evidenced  their 
loyalty  to  him.  He  determined  to  appeal  to  them  for 
temporary  funds.  He  spoke  to  them  of  the  mutual  in- 
terest of  master  and  man ;  he  pointed  out  the  prospect 
of  steady  employment  and  the  advantages  of  staying 
in  the  little  city  where  they  owned  their  homes,  remind- 
ing them  that  each  would  lose  hundreds  of  dollars  if 
forced  to  sell  out  and  seek  employment  elsewhere.  His 
workmen  were  not  slow  in  realizing  that  this  industry 
was  the  backbone  of  the  town.  All  volunteered  to  ac- 
cept half  wages  for  a  short  period,  and  many  advanced 
small  sums  from  their  savings  accounts  at  ordinary 


RECOVERING  FROM  FAILURE  87 

interest.     The  few  thousand  dollars  so  secured  enabled 
the  manufacturer  to  bring  his  finances  under  control. 

How  to  Reestablish  Your  Credit  and  Build  up  a  Rep- 
utation for  Sound  Business  Judgment 

With  money  at  hand  for  reorganization,  every  day 
in  the  years  that  follow  brings  anew  the  two-fold  prob- 
lem of  enforcing  reforms  that  safeguard  your  business 
from  failure,  especially  at  those  points  previously  left 
open,  and  of  developing  the  sort  of  reputation  which 
gives  greatest  strength  in  financial  operations. 

A  grocery  clerk,  having  bought  out  an  established 
business  in  a  town  on  the  Great  Lakes,  attracted  favor- 
able attention  by  his  aggressive  campaign  to  secure  new 
customers.  Shortly,  however,  his  unpaid  bills  for  goods 
reached  a  total  which  alarmed  his  creditors.  He  seemed 
bewildered  and  unable  to  find  ready  money;  his  credit- 
ors closed  in,  and  he  assigned.. 

The  assistant  credit  man  in  one  of  the  wholesale 
houses  came  to  aid  in  his  settlement  and  at  once  showed 
the  grocer  that  lax  collection  methods  had  trapped  him. 

"Do  you  know,"  said  the  grocer,  "I  have  puzzled 
my  head  off  over  how  to  get  in  the  money  due  me.  I 
am  a  salesman,  but  no  bookkeeper.  If  you  would  put 
in  enough  money  to  get  the  business  on  its  feet  and 
would  take  charge  of  the  accounting  and  collections  end, 
we  could  make  things  hum." 

A  partnership  was  formed  with  limited  credit,  firm 
control  of  expenses  and  modern  collection  facilities. 
Every  possible  dollar  was  put  into  quick  selling  stock. 
Records  were  kept  to  indicate  the  best  sellers,  and 
within  a  year,  all  debts  having  been  cancelled,  a  small 
reserve  was  established  against*  contingencies.  Of  chief 
importance,  however,  was  the  fact  that  in  this  short 


88  EMERGENCY  FINANCING 

time  the  concern  had  become  widely  known  for  the 
precise  balance  which  existed  between  its  selling  forces 
and  its  administrative  factors.  The  credit  of  the  firm, 
besmirched  by  failure,  had  quickly  been  cleared  and 
accorded  a  high  standing  among  bankers  and  whole- 
salers. 

Failure  challenges  over  again  those  principles  which 
underlie  correct  management  in  any  business,  whether 
in  the  supply  and  investment  of  the  capital,  in  the 
soundness  of  the  proposition  and  the  location  of  the 
plant,  in  the  handling  of  expenses  and  credits,  in  the 
assurance  of  profits  or  in  protection  against  the  future. 
To  build  a  new  credit  reputation  demands  observance 
of  these  principles  so  strict  that  the  keen  scrutiny  of 
creditors  shall  be  satisfied.  The  business  man  who  un- 
derstands the  basis  of  finance  will  therefore  make  his 
new  beginning  conservatively,  keeping  to  a  familiar 
business,  and,  under  ordinary  circumstances,  to  a  famil- 
iar locality.  With  correct  practice  and  sound,  gradual 
growth,  time  will  be  saved  in  the  reorganization,  and 
taoney  made. 


Permanent  Credit 

TRUE  credit  is  built  only  through 
fair  representation.     This   is   the 
credit  that  stimulates  industry,  inspires 
confidence,  and  creates  a  healthy  ac- 
tivity. — Henry  Clews 


CHAPTER  XII 
Don'ts  in  Money  Matters 

IGNORANCE  of  financing  and  misuse  of  credit  caused 
the  failure  of  a  large  drug  business  in  a  western 
city.  To  establish  the  business,  the  proprietor  secured 
a  loan  of  five  thousand  dollars  from  his  banker  on  a 
promissory  note.  It  was  not  a  conservative  loan.  The 
banker  granted  it  on  the  strength  of  the  druggist's  ar- 
gument, and  because  he  hoped  to  build  up  a  good  new 
account.  The  druggist  also  secured  an  additional  $5,000 
from  another  bank  on  the  basis  of  a  favorable  lease. 
This  gave  him  ten  thousand  dollars  <3ash — money  bor- 
rowed entirely  on  his  personal  qualities  and  on  his 
business  prospects. 

He  started  his  business  with  a  splurge.  At  first  sales 
were  heavy.  Shortly  after  the  opening,  however,  a 
slump  came.  Because  of  the  falling  off  in  trade,  he 
moved  to  another  section  of  the  city.  By  doing  this,  he 
sacrificed  the  initial  advantage  of  low  rent,  destroyed 
the  security  of  the  second  five  thousand  dollar  loan, 
and  shook  the  confidence  of  his  banker  by  this  confes- 
sion of  bad  judgment.  Although  sales  increased,  the 
climax  soon  came.  The  enterprise  was  like  an  inverted 
pyramid,  and  a  little  pressure  from  creditors  made  it 
topple  over. 


90  EMERGENCY  FINANCING 

The  first  necessity  in  a  new  business  is  to  understand 
fully  the  nature  of  the  different  sources  of  capital.  The 
money  the  druggist  secured  should  have  been  obtained, 
not  from  the  bank,  but  from  his  own  funds  or  from  a 
partner,  from  an  issuance  of  stock,  or  from  long  time 
loans.  By  persuading  the  banker  to  violate  an  estab- 
lished banking  policy,  he  compassed  his  own  failure.  As 
a  last  mistake,  he  ruined  his  credit  standing — his  only 
asset — by  allowing  the  spread  of  the  bad  impression 
made  by  his  misjudgment  in  regard  to  his  lease. 

To  mistake  the  nature  of  money  obtained  from  dif- 
ferent sources  is  to  invite  failure.  Try  to  avoid  short 
time  loans  unless  protected  by  quick  assets.  Do  not  put 
bank  money  into  fixed  improvements.  Reserve  your 
bank  accommodation  for  short  time  needs.  Moreover, 
you  should  keep  your  outlay  within  your  capital.  If 
your  capital  is  small,  start  small.  Establish  your  credit 
by  maintaining  a  policy  of  conservatism  and  financial 
security.  Too  much  capital  invested  in  fixed  improve^ 
ments;  unwarranted  expansion;  stretching  credit;  ex- 
tending too  much  credit  to  customers;  failure  to  keep 
an  efficient  check  on  the  business,  are  the  chief  difficul- 
ties in  financing  any  business.  Ability  to  recognize 
these  dangers,  and  to  profit  by  the  experience  of  others 
are  the  safeguards  that  the  successful  business  man  will 
cultivate. 

An  average  of  more  than  3,000  failures  a  year  in 
the  United  States  are  ascribed  to  insufficient  capital. 
In  most  of  these  cases  the  fault  is  not  so  much  a  lack 
of  capital  as  the  folly  of  going  beyond  capital. 

A  competitor  entered  the  field  of  a  merchant  in  a 
small  western  town.  The  old  established  merchant  was 
not  so  much  afraid  of  losing  his  trade  as  of  seeing  the 
other  man  have  a  bigger  store.  "I'm  going  to  beat 


DON'TS  IN  MONEY  MATTERS  91 

Jones,"  he  boasted  to  his  friends.  "With  this  end  in 
view,  he  stretched  his  credit,  and  unable  to  meet  bills 
due,  his  business  collapsed.  He  had  failed  to  see  the 
danger  signal. 

Necessity  —  and  that  alone  —  should  underlie  expan- 
sion. When  a  business  is  thriving,  and  customers  are 
clamoring  for  more  goods  than  can  be  sold  or  manu- 
factured conveniently,  or  for  greater  variety  than  pres- 
ent facilities  afford,  then  is  the  time  to  let  the  plant 
broaden  out  if  capital  can,  be  had. 

How  Extending  Too  Much  Credit  to  Customers  Ties 
up  Capital  and  Invites  Failure 

Unwise  credits  are  seldom  recognized  until  too  late. 
Over-accommodating  buyers  has  the  same  result  as 
growing1  too  fast,  or  over-buying.  Two  young  men  em- 
barked in  the  shoe  business  in  a  small  eastern  city. 
Their  capital  was  small,  but  trade  began  to  come  to  the 
store  from  the  day  it  was  opened,  and  it  was  just  the 
kind  of  trade  they  had  wished  for.  It  included  forty  or 
fifty  of  the  best  families  in  the  city.  Accounts  were 
started  and  the  store  soon  had  outstanding  among  the 
best  families  about  two  thousand  pairs  of  shoes. 

Since  all  their  capital  had  been  used  up  in  the  orig- 
inal investment,  the  outstanding  accounts  were  a  serious 
matter.  They  knew  that  they  could  do  nothing  to  col- 
lect from  the  wealthy  slow-pay  customers,  except  to 
keep  sending  them  bills  and  wait  until  they  remitted. 
They  knew  that  many  of  their  customers  were  in  the 
habit  of  going  away  for  the  summer  and  that  they  might 
have  to  wait  from  three  to  six  months  for  the  money. 

The  firm  struggled  along  for  several  months,  and 
then,  pressed  by  their  creditors  and  unable  to  collect 
from  their  debtors  among  the  rich,  assigned. 


92  EMERGENCY  FINANCING 

The  unwisdom  in  this  particular  case  lies  in  allow- 
ing any  credit  at  all  on  such  small  capital.  With  the 
money  they  had  on  hand,  the  young  men  should  have 
confined  their  business  to  an  actual  cash  basis. 

The  influences  which  are  constantly  operating  to  in- 
duce a  firm  to  make  unwise  credits  are  powerful,  and 
they  should  be  all  the  more  carefully  guarded  against. 
Do  not  grant  credit  when  you  have  insufficient  capital. 
If  you  do  extend  credit,  arrange  with  your  suppliers 
beforehand  for  long  time  credit  on  the  basis  of  your 
credit  business.  But  in  no  case  should  credit  exceed 
one-third  of  your  working  capital.  An  excess  of  credit 
granted  to  customers  not  only  puts  a  business  in  a  dan- 
gerous position  from  want  of  ready  funds,  but  it  also 
impairs  your  credit  standing. 

How  Indulgence  of  the  Borrowing  Habit  May   Be 
a  Cause  of  Failure 

The  greatest  and  most  constant  temptation  confront- 
ing a  veteran  wholesaler  in  New  York  has  been  the 
impulse  to  run  to  the  bank  for  a  loan  at  every. sign  of 
financial  shortage.  Borrowing  is  advisable  only  when 
it  is  necessary.  It  is  often  such  a  simple  matter  to  sign 
a  promissory  note  that  this  borrowing  habit  becomes 
a  real  danger  if  not  kept  in  check. 

Once  this  wholesaler  thought  it  imperative  to  borrow 
ten  thousand  dollars.  He  got  the  money  without  the 
slightest  trouble.  When  he  returned  to  the  office,  he 
opened  his  ledger  and  sat  for  ten  minutes  looking  at 
the  entry.  Trade  conditions  were  not  bright.  He  looked 
ahead  sixty  days  and  wondered  if  he  would  have  ten 
thousand  dollars  to  spare  when  the  notes  came  due. 

The  next  morning  he  took  up  the  note  as  soon  as  the 
bank  opened.  He  was  convinced  that  borrowing  had 


DON'TS  IN  MONEY  MATTERS  93 

become  a  habit  and  that  in  this  case  it  was  unnecessary. 
He  put  the  screws  on  his  collection  department,  and 
got  up  a  series  of  letters  to  his  salesmen  asking  for 
their  cooperation  in  bringing  sales  up  to  a  certain 
figure  during  the  next  sixty  days,  offering  a  special 
bonus  for  results.  In  this  way  he  made  solid  develop- 
ment replace  a  makeshift  financial  measure. 

When  you  have  once  established  your  credit,  guard 
against  the  borrowing  habit.  It  is  like  the  drug  habit — 
it  grows  with  indulgence.  When  you  are  threatened 
with  a  stringency,  instead  of  stretching  your  credit, 
follow  a  policy  of  entrenchment.  Look  for  leaks — there 
are  always  leaks  in  every  business — cut  expenses,  in- 
crease sales.  If  possible,  acquire  a  surplus  to  meet 
these  conditions. 

Avoiding  Future  Money  Troubles  through  Knowledge 
of  Financial  Rules 

Knowing  what  not  to  do  is  often  a  means  of  knowing 
what  to  do.  Bankrupts,  failures,  "down-and-outs"  have 
^earned  these  don'ts,  but  at  the  wrong  end  of  their 
business  careers.  Financing  a  business  is  like  climb- 
ing a  cliff.  The  steps  are  many  and  difficult.  The  best 
safeguard  is  to  know  the  slippery  places. 

Don't  mistake  the  nature  of  the  different  sources  of 
capital.  If  you  want  capital  for  establishing  your 
business,  take  in  capital  either  by  issuing  stock,  by  ne- 
gotiating an  individual  long-time  accommodation  or  by 
admitting  a  moneyed  partner.  Use  the  bank  especially 
for  the  every-day  needs. 

Don't  stretch  your  credit  too  far.  Secure  credit  in 
relation  to  the  amount  of  your  quick  assets.  Be  sure 
that  you  can  meet  your  notes,  then  sign  them. 

Don't  misuse  your  credit.     Guard  against  the  bor- 


94  EMERGENCY  FINANCING 

rowing  habit.  Meet  obligations  promptly  when  they 
are  due.  Don't  overdraw. 

Don't  misrepresent  facts  in  your  statements  or  in 
conversation  with  your  creditors. 

Don't  take  partners  or  large  stockholders  withoiit 
testing  them  as  to  their  ability  and  character.  Prepare 
in  advance  for  the  contingencies  that  may  arise. 

Don't  neglect  details  that  affect  your  credit  standing. 
Keep  your  stock  fully  insured.  Deal  courteously  with 
your  employees  and  with  your  customers.  Do  not  over- 
stock. Keep  your  goods  well  displayed.  Be  progressive. 

Don't  get  discouraged  when  the  business  gets  into  a 
tight  pinch.  Ingenuity,  resourcefulness,  energy  have 
carried  business  men  through  difficulties  greater  than 
any  met  in  the  ordinary  course  of  business.  Your  chief 
safeguard  lies  in  the  records  you  keep  and  your  ad- 
vance knowledge  of  financial  requirements. 

Remember  that  conscious  attention  to  the  every-day 
uses  of  capital  and  credit,  persistence  in  "following  the 
rules,"  and  avoidance  of  common  dangers,  determine 
the  safety  of  your  business  and  the  character  of  your 
ledger  balance. 


Go  Slowly 

HHHE  successful  business  houses  are 
-••  those  that  have  grown  slowly  and 
from  their  profits.  They  have  limited 
fixed  investments,  guarded  their  credit 
standing  and  profited  by  the  experi- 
ence of  others. 


•  ii"     "  ••! 

• 

Part  IV 


HOW  TO  MAKE  THE  MOST 
OF  YOUR  CAPITAL 


Keeping  Money  at  Work 

IDLE    workmen    draw    unearned  wages;  ill -directed 
workers  draw  half-won  pay.      Money  is  a  workman 
that  figures  large  on  every  pay  roll;  whose  wages  never 
halt. 

The  clever  office  manager,  storekeeper  and  factory 
foreman  plan  and  chart  the  future  work  of  every  employee 
so  that  it  may  be  uninterrupted,  well  directed,  ministered 
to  by  every  convenience — constantly  profitable.  Those 
who  handle  money  must  exercise  the  same  foresight:  to 
be  productive,  finances  must  be  kept  wisely  busy. 

You  must  not  employ  more  money  than  you  need,  else 
you  have  idle  funds  on  your  expense  account;  you  must 
not  employ  less,  else  you  miss  opportunities  and  fail  to 
meet  demands.  Cash  in  hand  is  not  the  final,  ruling 
factor  in  business.  It  must  be  hired  and  handled  with 
foresight  and  dominant  personal  force.  Drive  your  in- 
vestment. Enlist  funds  ahead  to  meet  bills.  Outline 
work  in  advance  for  the  surplus  funds  that  certain  seasons 
bring.  Know  the  work  before  your  funds  and  make  your 
capital  produce. 

If  you  have  funds  beyond  your  present  need,  farm  them 
out  against  future  demand,  as  you  would  expert  workmen 
in  dull  times.  As  you  would  watch  the  work  of  your 
men,  watch  for  losses  and  economies  in  money  matters. 

Finances  will  prove  an  adaptable  tool,  when  your  plans 
keep  you  in  touch  with  your  financial  condition,  so  that 
time  and  forethought  may  go  into  procuring  and  using 
your  money. 


an  iaa 


•BI: 


KEEPING  THE  MONEY  BALANCE  &VEN 

Receipts  and  Disbursements 
~  Tabulated  Daily  .!  Monthly  jYearly 

-]  Department  Quotas  and  Records 

Covering 
r-        Your 
Business 

Classified  Income  and 
~              Expense    Records 

^          Comparative  Records 
on  Each  Item                  | 

State- 
ments 

^  Business  Details  by  Districts  or] 
Trade  Classes                  | 

-|                 Money  Rates 

Covering    1 

~j             Business  Conditions 

Conditions  | 

-j       Markets  on  Your  Materials 

*-j       Markets  for  Your  Products 

Receipts  and  Disbursements 
Tabulated  Daily,  Monthly,  Yearly 

Plans 
to  Keep 
Check 

-j  Department  Quotas  and'  Records 

on  Your 
Business 

Classified  Income  and 
"~              Expense    Records 

Covering 
Your 

Comparative  Records 
on  Each  Item 

Business 

Business  Details  by  Districts  or 
~                   Trade  Classes 

-j                  Cash  Balances                  j 

-|                       Reserves                      | 

Charts 
-      and     - 
Graphs 

-|                     Depreciation 

—  j     Demands  of  Business  Growth    | 

—  |                   Money  Rates 

—  j              Business  Conditions 

,     Covering 
-  Commercial  - 
Conditions 

-]             Approach  of  Crisis 

-]       Markets  on  Your  Materials 

—  j       Markets  for  Your  Products 

Definite  fore-knowledge  of  finances  may  be  had  by  itemized  statements,  or 
by  charts  and  graphs  which  picture  money  matters.  ^  By  clever  use  of  these 
methods  keen   financiers  make  every  detail  and  important  comparison 

En: 


evident  at  a  glance 


CHAPTER  XIII 
Planning  to  Meet  Your  Bills 

WILSON,  a  hardware  merchant  in  a  small  western 
town,  had  laid  in  a  large  stock  of  dishes  that  he 
could  not  sell.  At  one  time,  partly  as  a  result  of  this 
purchase,  he  found  himself  in  a  difficult  situation.  He 
had  only  thirty  days  in  which  to  meet  a  large  sum  of 
obligations.  As  he  looked  ahead,  he  saw  that  his  best 
chance  was  to  close  out  his  stock  of  dishes.  He  knew, 
however,  that  no  ordinary  sales  scheme  would  suffice. 
He  could  advertise  a  bargain  sale,  but  his  line  was  not 
big  enough  to  draw  business  from  the  country,  and  the 
ordinary  bargain  sale  had  been  advertised  until  it  had 
lost  all  meaning.  He  adopted  the  following  plan: 

He  went  to  all  the  merchants  on  the  main  street  of 
the  town  and  proposed  a  general  town  stock  clearing 
sale.  He  proposed  to  run  a  full  page  advertisement  in 
all  the  papers  of  the  territory,  offering  to  refund  inter- 
urban  fares  to  customers  who  bought  goods  up  to  a  cer- 
tain value.  The  space  was  to  be  divided  equally  among 
all  the  merchants.  In  this  way  the  country  people,  who 
were  busy  with  their  crops,  would  be  attracted  to  the 
store,  although  an  advertisement  of  dishes  alone  would 
not  appeal  to  them.  The  plan  was  successful.  In  two 
days  the  entire  stock  of  dishes  was  sold.  The  sale  en- 

97 


98  KEEPING  CAPITAL  AT  WORK 

tailed  a  sacrifice  of  about  one-third  of  the  cost  price  of 
the  goods,  but  the  hardware  merchant  disposed  of  a 
stock  that  he  could  sell  in  no  other  way,  and  he  also 
secured  the  money  he  needed  to  meet  his  bills. 

His  ability  to  deal  with  the  situation  was  due,  in  the 
first  place,  to  the  fact  that  he  fully  analyzed  his  situa- 
tion. He  foresaw  the  difficulties  that  were  ahead  of 
him.  He  kept  a  detailed  record  of  his  business,  so  that 
he'  knew  closely  how  much  money  he  would  have  on 
hand  and  the  amount  of  his  obligations  at  any  time. 
This  estimate  gave  him  warning  in  plenty  of  time; 
thought  and  ingenuity  furnished  the  needed  solution  to 
his  puzzle. 

How  to  Prepare  for  Business  Needs  and  Opportunities 
— Increasing  Income  and  Perfecting  Credit 

Looking  ahead  and  planning  in  advance  is  necessary 
not  only  in  finding  money  to  buy  goods,  to  make  in- 
vestments, and  to  plan  advertising  or  sales  campaigns, 
but  also  and  chiefly  in  the  ordinary  course  of  meeting 
your  business  obligations. 

The  necessity  for  planning  ahead  applies  equally  well 
to  opportunities  and  to  emergencies.  It  is  one  thing  to 
see  opportunities — it  is  another  to  prepare  to  take  ad- 
vantage of  them.  A  South  Dakota  merchant,  by  plan- 
ning ahead,  was  able  to  buy  out  the  stock  of  a  dealer 
in  a  similar  line.  He  knew  that  this  merchant  was  spec- 
ulating heavily  in  land — that  his  regular  business  was 
falling  off  through  neglect.  He  knew  that  he  would 
either  have  to  sell  or  make  an  assignment,  so  he  reduced 
his  own  stock,  secured  a  full  line  of  credit  and  accumu- 
lated a  surplus.  When  the  opportunity  came,  he  was 
able  to  take  advantage  of  it. 

In  planning  to  meet  cash  needs,  there  are  two  courses 


PLANNING  TO  MEET  BILLS        •         99 

open:  (1)  to  increase  production  within  the  business 
and  (2)  to  secure  additional  credit.  Ability  to  use 
these  methods  depends  upon  the  completeness  of  your 
forecast. 

There  are  many  ways  to  increase  production  or  in- 
come within  a  business.  One  method,  as  in  the  case  of 
the  hardware  dealer,  is  to  adopt  a  new  sales  scheme. 
A  manufacturer  in  Texas  who  was  facing  a  stringency 
hired  an  efficiency  expert  to  go  over  his  business.  He 
found  that  on  some  products  the  firm  was  actually 
losing  money,  while  on  other  lines  it  secured  a  large 
profit.  The  manufacturer  immediately  concentrated  all 
his  efforts  upon  one  leading  department  of  his  plant, 
for  he  saw  that  he  could  cut  the  price  of  this  article  and 
through  increased  sales  could  more  than  cover  the  de- 
ficiency he  was  facing.  Another  manufacturer,  in  a 
similar  situation,  had  a  large  stock  of  raw  material  on 
hand.  He  worked  a  double  shift  to  convert  this  into 
salable  goods,  and  for  the  period  up  to  the  time  when 
his  notes  were  due  he  reduced  other  expenses  and  buy- 
ing. A  large  advertising  agency  which  had  notes  due 
on  the  first  of  the  month  that  it  could  not  meet,  to- 
gether with  the  payroll,  changed  the  pay  day  of  the 
salaried  employees  from  the  first  to  the  tenth  of  the 
month.  When  the  need  came,  the  change,  which  had 
long  been  contemplated,  offered  an  easy  solution  for 
the  problem.  Another  firm  in  need  of  large  sums 
adopted  a  freak  collection  letter,  consisting  only  of  the 
heading  and  a  question  mark,  which  secured  results 
from  debtors  who  never  gave  the  ordinary  statements 
more  than  a  glance.  A  jewelry  house  which  had  been 
idle  a  greater  part  of  the  dull  summer  seasons  put  in  a 
line  of  souvenirs  and  other  articles  to  attract  the  tour- 
ist trade. 


100  KEEPING  CAPITAL  AT  WORK 

These  are  only  a  few  of  the  solutions  that  have  been 
effectively  used  to  cover  foreseen  stringencies.  The 
clever  manager  first  considers  sales  and  advertising. 
He  sees  if  the  production  by  these  means  can  be  in- 
creased. He  also  tightens  up  on  collections  and  restricts 
credit.  He  reduces  stock  to  the  bare  necessities  of  the 
business.  He  endeavors  to  discover  unprofitable  depart- 
ments, and  does  away  with  them.  He  makes  additional 
efforts  to  stop  leaks.  Extraordinary  needs  are  met  with 
extraordinary  actions  or  appeals.  The  first  point  to 
remember,  however,  is  that  the  ability  to  provide  for 
opportunities  and  contingencies  depends  upon  the  abso- 
lute check  you  have  upon  your  business — the  accuracy 
of  advance  knowledge  of  available  resources  and  pend- 
ing obligations. 

Laying  Plans  for  More  Credit  to  Meet  Your  Future 
Needs  for  Money 

An  eastern  manufacturer  saw  that  in  thirty  days  he 
would  need  twenty-five  thousand  dollars.  He  had  al- 
ready been  refused  credit  by  the  banks,  but,  since  the 
dull  season  was  coming  in  his  business,  his  only  chance 
was  to  overcome  their  distrust.  He  knew  that  his  assets 
— the  value  of  his  equipment  alone — warranted  a  loan 
of  much  more  than  he  needed.  He  was  certain  that 
if  he  could  convince  the  bankers  of  business  methods  in 
his  enterprise,  they  would  agree  to  extend  accommoda- 
tions. He  could  borrow,  but  he  must  first  re-establish 
his  credit. 

His  first  step  was  to  secure  the  report  of  a  public 
accountant.  This  showed  that  the  condition  of  the  busi- 
ness was  sound,  but  that  the  credit  standing  of  the  firm 
was  impaired  by  poor  organization  and  management. 
When  the  report  was  completed,  the  owner  of  the  busi- 


PLANNING  TO  MEET  RILfo)  101 

ness  completely  reorganized  every  department  of  his 
concern.  Then  he  went  to  the  banker  with  his  report, 
showed  him  how  he  had  reformed  some  of  his  manage- 
ment methods  and  that  he  had  ample  security.  The 
loan  was  granted  without  hesitation.  By  foreseeing  the 
need  for  money,  the  owner  of  the  business  was  able  to 
put  it  in  a  condition  that  made  his  credit  standing  right. 

What  to   Consider  in  Planning  to   Meet  Every-day 
Financial  Needs 

The  keen  financial  head  will  not  only  foresee  and  plan 
to  meet  contingencies  that  threaten  his  business  exist- 
ence, and  opportunities  for  larger  profit,  but  will  also 
plan  his  financing  so  that  he  can  meet  his  usual  bills 
with  the  greatest  convenience  and  least  anxiety,  with- 
out impairing  his  credit  standing. 

In  planning  to  meet  regular  financial  obligations, 
there  are  four  points  to  consider: 

1.  Purchases.    Purchases  should  be  planned  in  rela- 
tion to  obligations.     When  the  business  is  heavily  bur- 
dened, it  is  often  best  to  sacrifice  market  advantages,  to 
purchase  conservatively  and  to  reduce  stock. 

2.  The  maturity  of  new  obligations.     By  knowing 
the  cash  receipts  assured  at  every  date  in  question,  the 
executive  can  spread  out  the  maturity  of  his  notes  so 
that  it  will  not  be  necessary  either  to  put  off  creditors 
or  to  secure  additional  funds  from  the  bank. 

3.  Collections.     When  credits  extended  to  customers 
make  too  great  inroads  on  the  working  capital,  you  can 
afford  to  offer  discounts  for  cash,  to  put  pressure  on 
your  slow-pay  customers,  or  to  arrange  as  a  last  resort 
for  loans  on  the  security  of  your  accounts  receivable. 

4.  Shortage  in  money  markets.    When  money  prom- 
ises to  become   tight   and   discounts   are  beginning   to 


102  KEEP(\G'  CAPITAL  AT  WORK 

rise,  arrange  to  have  cash  on  hand,  or  to  have  long- 
time credit  agreed  upon  beforehand.  A  study  of  threat- 
ening money  conditions  enables  the  merchant  to  use  his 
credit  in  time  to  supply  the  needs  of  his  business  at  a 
saving  impossible  if  he  waits  until  everyone  is  demand- 
ing accommodation. 

The  basis  of  good  financing,  however,  is  good  account- 
ing. The  wise  financial  head  first  makes  sure  that  the 
money  facts  of  his  business  come  to  him  regularly,  auto- 
matically, accurately.  Having  secured  this  information, 
he  can  match  his  approaching  obligations  against  his 
resources,  and  can  foresee  those  unusual  demands  that 
call  for  increased  output,  reduction  of  expenses,  and  a 
reinforcement  of  credit  standing. 


Govern  the  Expense 

IF  HE  has  the  proper  system,  the 
executive  can  scan  the  expense 
streams  from  the  eminence  of  his  own 
desk.  No  rivulet  will  be  too  small  to 
see.  Each  entry  will  be  itemized  under 
its  proper  classification.  In  running 
through  the  accounts  each  morning,  he 
can  place  his  finger  on  items  that  ap- 
pear too  large  or  uncalled  for,  or  which 
need  explanation.  He  can  point  out 
the  spots  where  expense  streams  can 
be  dammed.  — Edward  L.  Wedeles 


CHAPTER  XIV 
Keeping  Extra  Money  Busy 

WHETHER  idle  money  or  idle  money  possibilities 
in  any  other  form  really  exists  in  a  business  is  a 
question  of  viewpoint.  Many  merchants  let  their  sur- 
plus dribble  away  unnoticed,  leaving  a  sense  of  always 
being  pressed  for  funds.  A  great  manufacturer  came 
home  from  Europe  to  find  his  executives  nursing  a  big 
bank  balance  merely  for  the  sense  of  safety  it  gave 
them  in  his  absence.  "I  hire  you  not  only  to  make 
money,  but  to  use  it—  to  put  it  back  at  8%  in  the  busi- 
ness rather  than  to  lock  it  up  in  the  bank  at  2%,"  was 
his  caustic  word  to  them.  , 

"My  store  managers  go  up  or  down — put  five  figures 
of  profit  or  only  four  upon  the  January  balance  sheet 
— just  in  proportion  as  they  keep  their  capital  turning 
constantly, "  said  the  head  of  a  chain  of  retail  stores 
in  towns  of  from  10,000  to  150,000. 

These  statements  show  the  attitude  of  the  successful 
man  towards  idle  money.  In  his  case  surplus  funds  are 
foreseen,  eagerly  seized  upon  and  put  to  work  as  they 
develop.  Lines  which  prove  slow  are  closed  out  so  that 
the  cash  can  be  put  into  fast  sellers.  Every  item  of 
equipment,  ground  rent  and  payroll  not  highly  pro- 
ductive is  cut  off. 

103 


104  KEEPING  CAPITAL  AT  WORK 

In  every  business  the  pendulum  swings  between  ex- 
cess receipts  and  excess  disbursements.  The  publisher 
of  a  farm  journal  finds  his  advertising  and  subscription 
returns  for  December  and  January  seven  times  as  large 
as  those  for  July  and  August,  while  his  current  expenses 
vary  not  nearly  so  much.  The  furniture  house,  the 
tailor,  the  manufacturer  of  stoves,  the  dealer  in  farm 
implements,  have  similar  problems. 

When,  in  going  over  his  monthly  balance,  however,  a 
merchant  stumbles  upon  a  $400  surplus  he  is  in  no  po- 
sition to  make  the  most  of  it.  It  is  only  by  records  plus 
foresight,  by  watching  money  pouring  in  through  many 
channels,  by  shutting  off  extravagances  which  follow  at 
the  heels  of  easy  money,  and  by  making  extra  efforts  to 
"  bunch "  idle  funds  for  new  uses,  that  they  can  be 
made  to  pay  their  toll  to  the  business. 

A  successful  manufacturer  has  chosen  the  year  1910 
as  the  standard  or  average  year  in  his  business.  His 
daily,  monthly  and  annual  statements  always  compare 
the  range  of  receipts  and  expenditures  with  correspond- 
ing figures  for  1910. 

Twenty    Uses    That    Have   Made   Idle   Money   Pay 
Back  Profits  to  Store,  Office  and  Factory 

A  business  whose  capital  runs  into  eight  figures  re- 
ceives similar  cash  forecasts  thirty  and  sixty  days  in 
advance.  At  those  seasons  when  surplus  assets  appear, 
the  management  at  once  begins  to  plan  the  use  of  this 
extra  money. 

' ' Shall  we  need  this  balance  shortly?"  is  the  first 
question  asked. 

"Is  this  an  actual  profit  item  which  we  can  afford  to 
withdraw  from  our  operating  fund  and  put  into  fixed 
improvements?"  is  the  next  inquiry. 


USING  SURPLUS  FUNDS  105 

"Is  there  no  profitable  use  for  this  surplus  within 
our  business  and  should  we  invest  it  as  a  reserve  in 
outside  securities  or  enterprises  ? ' '  This  question  is 
taken  up  only  after  the  inside  needs  of  the  business  have 
been  canvassed. 

The  most  common  surplus  is  that  which  accumulates 
merely  for  a  short  season  and,  as  the  records  show,  will 
soon  be  needed  to  meet  bills.  Short  time  uses  which 
have  returned  good  profits  on  extra  money  are : 

1.  To  buy  raw  material  on  a  low  market. 

2.  To  buy  job  lots  for  quick  sale. 

3.  To  establish    a    temporary    branck    for    seasonal 
trade,  as  a  summer  shop  at  a  pleasure  resort. 

4.  To  tie  up  by  option  a  lease  or  location  of  which 
a  competitor  threatens  to  make  dangerous  use. 

5.  To  manufacture,  buy,  or  stage  a  sale  for  a  spe- 
cial season  or  occasion. 

6.  To  discount  bills,  or  call  in  obligations  that  are 
drawing  interest. 

7.  To  extend  extra  credit  to  a  valued  customer. 

8.  jTo  make  up  supplies  or  lay  in  equipment  for  the 
plant  during  dull  days. 

A  jeweler  in  an  Atlantic  Coast  city  found  his  store 
and  capital  practically  idle  during  eight  months  of  the 
year  while  his  trade  luxuriated  at  seaside  and  mountain 
resorts.  For  three  years  he  had  seen  his  winter  surplus 
eaten  up  by  summer  expenses.  During  the  fourth  win- 
ter he  formed  a  resolution  to  seize  his  annual  excess 
money  and  make  it  produce.  His  plans,  laid  far  ahead, 
were  to  establish  a  branch  store  at  a  fashionable  Maine 
resort.  He  took  a  summer  lease  upon  space  in  a  lead- 
ing summer  hotel,  hired  furnishings,  sent  down  two  of 
his  salespeople  and  freshened  his  display  weekly  with 
new  lines  from  his  metropolitan  store.  The  result  was 


106  KEEPING  CAPITAL  AT  WORK 

dull  season  profit  on  what  had  been  idle  money,  idle 
labor,  idle  overhead  expense  arid  idle  stocks. 

Idle  money  or  the  ability  to  "take  the  discount'7 
gives  the  clever  purchasing  agent  and  store  buyer  an 
important  advantage  in  the  market.  The  merchandise 
manager  of  a  great  department  store,  when  formerly 
buyer  for  the  haberdashery  section,  often  turned  the 
department  surplus  in  a  single  day.  During  a  lull  in 
an  extraordinarily  good  business  day,  when  stocks  had 
been  pulled  over,  he  was  accustomed  to  drive  to  the 
wholesale  quarter,  buy  for  cash  an  attractive  lot  of 
neckties,  hosiery  or  hats,  pile  them  into  the  cab  and 
rush  them  to  the  store.  The  new  merchandise  fresh- 
ened the  display  and  started  a  new  buying  impulse 
which  made  the  departmental  balance  that  evening  the 
envy  of  other  buyers. 

Business  expansion  ought  to  wait  until  accumulated 
profits  or  new  capital  warrants  the  move.  Where  such 
a  surplus  has  been  foreseen,  however,  many  profitable 
avenues  are  open  to  its  use: 

1.  To  enlarge  the  factory  or  store. 

2.  To  develop  the  manufacture  or  sale  of  a  particu- 
lar line,  or  to  take  on  new  lines. 

3.  To  buy  patents  resulting  in  the  sale  of  new  lines. 

4.  To  develop  a  special  advertising  and  sales  cam' 
paign. 

5.  To  devise  an  improved  delivery  system. 

6.  To  reach  a  new  class  or  a  new  trade  district. 

7.  To  reorganize  departments. 

8.  To  open  new  sources  of  material. 

9.  To  give  the  business  a  financial  overhauling  which 
will  result  in  economy  and  better  credit. 

10.  To  develop  a  new  system  of  hiring,  handling  and 
paying  employees. 


USING  SURPLUS  FUNDS  107 

11.  To  secure  real  estate  deeds  or  leases  on  future 
business  sites. 

12.  To  put  on   foot  an   investigation  of  conditions 
that  threaten  the  prosperity  of  the  business. 

An  investment  in  permanent  improvements  ought  to 
stand  this  test:  Does  the  business  warrant  this  ex- 
pansion and  will  it  mean  an  improvement  in  credit 
standing  or  financial  efficiency? 

Reinvesting  a  Surplus  for  the  Enlargement  and  Greater 
Stability  of  the  Enterprise 

A  clever  druggist  planned  ahead  for  three  years  and 
by  concentrating  all  the  surplus  which  rigid  economy 
enabled  him  to  accumulate,  purchased  three  suburban 
stores  at  strategic  points,  installed  motorcycle  delivery 
and  opened  a  plant  for  making  his  own  frozen  dainties. 
By  these  measures  he  at  once  put  his  idle  money  back 
into  the  business  in  a  way  which  gave  him  trade  con- 
trol on  an  extraordinarily  economical  basis. 

A  stone  cutting  and  sawing  concern  was  accumu- 
lating a  surplus  which,  month  by  month,  mounted  from 
2  per  cent  until  it  promised  to  total  12 'per  cent  of  the 
capital  stock.  Already  it  had  lain  in  bank  at  nominal 
interest  for  several  months,  wrhen,  at  the  sales  man- 
ager's suggestion,  the  money  was  put  into  a  branch  shop 
in  a  neighboring  city  which  offered  an  unusual  oppor- 
tunity. Operated  as  a  branch,  this  required  but  small 
capital,  and  soon  became  a  source  of  profit. 

Too  often  extra  funds  blind  the  owner  to  dangers 
which  threaten  the  life  of  the  concern.  The  first  office 
of  profits  in  the  wisely  conducted  business  is  to  safe- 
guard the  future,  not  merely  by  contingent  reserves,  but 
also  by  furnishing  funds  for  investigations  and  tests 
of  better  business  methods. 


108  KEEPING  CAPITAL  AT  WORK 

For  years  an  ominous  increase  in  selling  expense 
had  been  cutting  into  the  profits  of  a  nation-wide  hard- 
ware business.  Finally  it  was  voted  that  the  semi- 
annual surplus  be  used  to  conduct  an  expert  investiga^ 
tion  of  jobbing,  direct  selling  and  advertising,  with 
comparative  records  over  a  period  of  three  decades. 
These  records  laid  a  warning  finger  upon  several  line? 
for  which  the  future  was  closing  and  proved  by  tests* 
the  growing  profitable  demand  for  other  numbers. 

This  result  illustrates  the  most  valuable  function  of 
extra  funds  in  your  business ;  not  merely  to  pay  a  nom- 
inal percentage  in  some  quick  turnover,  but  to  plumb 
your  business  difficulties  and  opportunities,  so  that  the 
first  may  be  corrected  and  the  business  may  go  forward 
to  success  upon  a  thorough  understanding  of  the  latter. 


Checking   Up 

T^XPENSE  is  best  controlled  by  cen- 
••— ^  tralizing  its  supervision.  All  its 
details  should  be  subject  to  some  sys- 
tem that  reduces  them  to  the  daily 
scrutiny  of  a  higher  executive. 

— Edward  L.  Wedeles 


CHAPTER  XV 
Handling  Reserves  and  Investments 

FOLLOWING  the  panic  of  1907,  a  firm  of  retail 
jewelers  in  an  eastern  city  faced  the  necessity  of 
raising  a  large  sum  in  ready  cash.  The  firm  had  made 
its  usual  purchases  for  spring  payment,  considering  the 
money  flurry  only  temporary.  When  spring  arrived, 
however,  the  goods  were  still  in  the  show  cases.  More- 
over, several  jewelry  supply  houses,  hard  pressed  by 
their  creditors,  had  given  advance  notice  that  they  must 
insist  upon  prompt  payment. 

Here  is  a  condition  which,  over  and  over,  has  put  the 
label  of  failure  upon  short-sighted  store  and  factory 
organizations.  By  patience,,  foresight  and  wise  invest- 
ment, however,  the  jewelers  were  prepared  for  precisely 
this  emergency.  From  the  first  they  had  realized  that 
in  a  business  based  upon  the  sale  of  luxuries  financial 
stringency  must  mean  short  funds.  During  ten  years 
of  remunerative  business,  therefore,  they  had  rigorously 
set  aside  a  percentage  of  their  profits  as  a  reserve  asset, 
invested  in  first-class  bonds  yielding  a  fair  percentage 
and  possessing  unexcelled  stability.  Upon  these  securi- 
ties as  collateral  the  head  of  the  firm  easily  borrowed 
funds  sufficient  to  meet  demands  and  maintain  its  high 
credit  reputation. 

113 


110  KEEPING  CAPITAL  AT  WORK 

In  every  line  of  manufacture  and  service  like  con- 
tingencies often  arise  which  can  be  met  only  by  the 
conserved  strength  of  the  concern  itself.  A  mine  may 
be  flooded.  A  factory  may  be  wrecked  by  a  gas  or  steam 
explosion.  There  may  be  a  disastrous  strike,  a  crop 
failure,  a  series  of  losses  from  bad  debts,  a  costly  dam- 
age suit.  Depreciation  of  property,  redemption  of 
bonds,  the  necessity  to  scrap  old-fashioned  machinery 
and  to  reorganize  upon  improved  lines,  the  danger  of 
calamity  not  protected  by  insurance — these  are  some 
of  the  factors,  self-evident  or  unforeseen,  which  may, 
unexpectedly  wipe  out  a  man's  capital,  make  it  non- 
productive or  tie  it  up  beyond  reach  when  ready  money 
means  business  life. 

Men  trained  in  finance  and  business  have  come  upon 
certain  definite  principles,  by  observing  which  it  is 
feasible  to  store  up  the  strength  of  prosperous  times 
for  the  "rainy  day."  But  the  accumulation  of  surplus 
funds  and  reserve  assets,  whether  in  the  business  of 
one  thousand  dollars  or  one  million  dollars  capital,  is  a 
source  of  strength  only  when  carefully  adapted  to  the 
particular  needs  most  likely  to  appear  and  when  in- 
vested in  such  a  way  as  to  bring  in  profits,  yet  be  ready 
for  instant  use  in  any  emergency. 

A  fifty  thousand  dollar  concern  in  a  Wisconsin  city 
determined  that  from  the  outset  reserve  assets  should  be 
set  aside.  The  executive  committee  did  this  consist- 
ently, even  in  the  face  of  bills  payable  which  continually 
had  to  be  met  by  bank  loans. 

"I  understand,"  said  the  banker,  "that  it  is  your 
wish  to  operate  on  the  most  conservative  basis.  What 
you  are  actually  doing,  however,  is  to  borrow  money 
from  us  to  invest  in  outside  securities.  You  are  letting 
the  other  man  use  your  credit  to  make  a  profit  which 


RESERVES  AND  INVESTMENTS  111 

you  seem  fearful  of  attempting.     I  shall  have  to  insist 
that  you  put  your  collateral  back  of  this  loan/' 

The  result  of  thus  attempting  to  set  aside  reserve  assets 
drawn  from  loans  and  working  capital  instead  of  from 
the  profits  of  the  business  was  that  the  reserve  securi- 
ties were  already  on  the  table  just  when  the  corpora- 
tion, caught  by  a  demand  for  cash,  most  needed  to 
play  them.  An  expert  accountant  has  laid  down  the 
rule  that  capital  and  earnings  (after  providing  for  de- 
preciation and  obsolescence)  are  to  be  used  first  to 
supply  all  the  permanent  funds  necessary  for  the  op- 
eration of  the  factory  or  store.  If,  after  paying  the 
dividends  properly  due,  profits  are  then  sufficient,  it  is 
wise  to  set  aside  a  certain  portion  of  them  as  an 
emergency  or  definite  purpose  reserve.  The  objects  of 
such  a  reserve  may  be  divided  under  two  heads : 

1.  A  reserve  may  be  built  up  to  meet  periodical  or 
seasonal  demands,  as  where  the  forecasting  of  receipts 
and  disbursements  indicates  that  bills  may  profitably 
be  discounted  with  surplus  funds  in  May  and  Novem- 
ber,  while  later  receipts   will  replace  the  reserve  for 
future  demands. 

2.  A  reserve  may  be  laid  by  blindly    as    insurance 
against   unforeseen   catastrophes   or   a   financial   crisis; 
or  as  a  "war  chest "  with  which  to  carry  on  operations 
when  conditions  of  supply,  demand  and  competition  offer 
unusual  opportunities. 

In  deciding  upon  and  establishing  reserve  assets  the  in- 
dividual merchant  or  manufacturer  who  has  become  ex- 
pert in  finance  guides  himself  by  the  character  and 
needs  of  his  business.  He  considers  the  various  situa- 
tions in  which  a  reserve  would  be  of  vital  importance. 
He  makes  certain  that  his  operating  capital  is  sufficient 
and  that  his  reserve  might  not  better  be  invested  to 


112  KEEPING  CAPITAL  AT  WORK  , 

develop  his  plant  and  trade.  After  studying  the  pro- 
cedure of  clever  business  men  in  his  own  and  allied 
lines  he  calculates  whether  three,  four  or  five  figures 
will  adequately  take  care  of  short-time  demands  and  un- 
foreseen needs.  Finally  he  fixes  upon  the  terms  under 
which  the  reserve  will  be  put  aside  and  invested,  so  that 
his  withdrawals  will  not  overtax  the  business  and  will  go 
into  securities  well  adapted  to  his  needs. 

How  to  Select  Investments  That  Will  Maintain  Your 
Surplus  Intact  and  Ready  for  Instant  Use 

Having  laid  down  the  definite  financial  policy  which 
brings  your  reserve  to  your  bank  book,  the  wise  and 
shrewd  investment  of  the  funds  demands  attention. 

Four  general  tests  of  an  investment  are  laid  down  by 
men  of  financial  acumen : 

1.  Are  your  principal  and  interest  safe  or  certain  to 
come  in  when  due  ? 

2.  Is  the  net  return  or  rate  of  income  on  the  invest- 
ment advantageous? 

3.  How  does  the  security  rank  as  to  ease  of  convert- 
ing it  into  cash  and  how  staple  is  its  market  value  in 
times  of  crisis? 

4.  What  are  the  prospects  of  the  security  increasing 
in  value? 

A  Georgia  manufacturer  whose  big  selling  season  fol- 
lowed cotton  marketing  time,  invested  his  cash  reserve 
in  the  purchase  and  development  of  an  interurban  sub- 
urb. The  needs  of  the  business  were  for  a  reserve  which 
would  meet  expenses  during  the  dull  spring  and  sum- 
mer seasons.  The  gradual  depreciation  of  the  plant, 
the  necessity  for  new  machinery  at  the  end  of  five  years 
and  the  imminence  of  seasons  when  sales  would  be  seri- 
ously affected  by  drought  and  the  ravages  of  the  boll 


RESERVES  AND  INVESTMENTS  113 

weevil,  constituted  a  grave  responsibility  in  the  use  of 
this  surplus  accumulated  during  six  prosperous  seasons. 
The  investment,  however,  took  the  surplus  out  of 
the  business  and  put  it  into  another  business  which 
offered  golden  possibilities  of  increased  value,  but  as  a 
preliminary  demanded  large  additional  funds  for  de- 
velopment. Under  the  most  favorable  conditions,  more- 
over, neither  returns  nor  profitable  sales  could  be  hoped 
for  under  two  years. 

Instead  of  adding  strength  to  his  business,  the  ex- 
ecutivr  had  doubled  his  risk  and  bled  his  growing  con- 
cern to  start  another.  An  unforeseen  period  of  de- 
pression, coming  simultaneously  with  irresponsible  man- 
agement of  the  real  estate  enterprise,  affected  the  con- 
cern's final  resource — its  bank  credit — so  seriously  that 
the  executive  suffered  months  of  stress,  and  the  sacri- 
fice of  his  entire  invested  "  reserve "  before  he  brought 
his  business  to  safe  ground  again. 

By  matching  every  proffered  investment  with  these 
four  tests,  and  with  the  requirements  of  your  par- 
ticular business,  you  may  make  your  reserve  almost 
absolute  insurance  against  financial  wreck.  To  pay  for 
inapt  advantages  is  a  waste,  for  the  presence  in  a  high 
degree  of  one  desirable  quality  always  means  a  propor- 
tionate lack  in  some  other  advantage.  The  man  of 
small  capital  must  count  safety  as  the  prime  requisite, 
and  be  contented  with  a  smaller  return.  Wealthy  mer- 
chants or  corporations  may  sometimes  take  chances  with 
unrecognized  stocks  on  the  chance  of  increased  income ; 
but  the  small  retailer  or  manufacturer  will  remember 
that  his  securities  must  be  " quick  assets,"  to  protect 
him  from  unforeseen  money  demands.  Where,  how- 
ever, a  fixed  or  semi-fixed  investment  is  sought,  better 


114  KEEPING  CAPITAL  AT  WORK 

interest  and  the  promise  of  good  increase  in  yalue  may 
be  had. 

Investing  a  surplus  calls  for  financial  knowledge 
usually  beyond  the  field  of  the  business  man  himself. 
The  expert  advice  of  professional  investors  and  trusted 
"bank  officials  should  go  into  the  handling  of  your  busi- 
ness reserve.  Study  and  calculation  of  the  needs  of 
your  business  come  first;  then  tests,  investigation,  and 
selection  among  the  securities  available.  To  get  invest- 
ments averaging  well  in  respect  to  all  four  tests,  keen 
business  executives  make  up  a  list  of  securities  to  include 
"gilt-edged"  securities  on  which  safety  and  solid  value 
as  collateral  compensate  for  the  low  rate  of  interest; 
lower  grade  bonds  and  stocks  which  pay  well,  but  may 
decline  in  the  crisis  when  prime  bonds  are  at  their  best, 
and  real  estate  or  real  estate  mortgages  and  leases, 
affording  rapid  increases  in  value  and  perhaps  some 
special  advantage  to  the  business. 


Paying  Dividends 

t^INANCIAL  sagacity  and  control 
*  are  never  better  evidenced  than  by 
modest  living  and  conservative  person- 
al withdrawals  by  the  owner  of  a  bus- 
iness. Dividends  ought  to  be  kept 
down  to  amounts  the  enterprise  can 
spare  without  hurt. 


CHAPTER  XVI 

Where  to  Look  for  Leaks 
and  Savings 

INCREASED  profits  means  increased  sales  or  greater 
economy.  The  opportunity  to  cut  costs  and  stop 
leaks  belongs  to  every  department  in  every  business 
and  touches  economy  of  labor,  of  time,  of  supplies,  of 
material,  of  power,  of  service.  But  the  treasury  of  tho 
business,  that  department  which  handles  the  money, 
uses  the  credit  and  makes  permanent  investments  of  the 
capital,  has  a  chance  to  save,  which  is  greater  and  less 
often  turned  to  advantage  than  that  of  perhaps  any 
other  unit. 

"To  allow  money  to  lie  in  bank,"  said  the  cashier  of 
a  metropolitan  concern,  "is  to  cut  the  firm's  just 
profits,  for  the  amount  earned  in  interest  will  never 
approximate  what  a  judicial  discounting  of  bills  will 
yield.  Interest  on  a  checking  account  is  insignificant 
compared  to  discounts,  which  range  all  the  way  from 
two  per  cent  up  to  the  maximum  of  six  or  seven  per 
cent  sometimes  offered  on  dry  goods,  jewelry,  notions 
and  merchandise  lines." 

Use  of  surplus  funds  or  easy  credit  to  discount  bills 
is  an  elementary  source  of  saving;  yet  it  is  often  neg- 
lected or  passed  over  as  an  unfamiliar  operation.  How 

115 


116  KEEPING  CAPITAL  AT  WORK 

to  keep  check  upon  bills  payable  and  discount  the 
largest  possible  total  of  them  is  thus  detailed  by  a 
cashier  who  saves  hundreds  of  dollars  to  his  concern 
monthly  in  this  way: 

"At  the  beginning  of  each  month,"  he  said,  "I  make 
a  list  of  the  bills  that  fall  due  that  month,  arranging 
them  according  to  dates  of  maturity.  Every  fifth  day 
I  go  over  this  list  to  post  myself  as  to  the  cash  required 
in  order  to  get  full  advantage  of  discounts.  If  more 
cash  receipts  come  in  than  are  demanded  to  care  for 
current  bills,  I  frequently  anticipate  bills  and  pick  up 
extra  discounts.  Where  I  can  call  in  funds  for  discount 
use  at  a  profit,  I  offer  such  terms  as  will  bring  the 
needed  money  at  a  margin." 

Handling  Funds  and   Using   Credit  on  the  Basis  of 
Least  Loss  and  Greatest  Profits 

Financial  savings  as  contrasted  with  economies  in 
other  operations  of  a  business  have  been  worked  out  by 
skillful  cashiers  and  executives  under  two  heads: 

A.  Leaks  and  savings  in  the  handling  of  current 
funds  and  credit. 

B.  Leaks  and  savings  in  the  long-time  investment 
of  money  within  or  for  the  business. 

In  either  case  the  leak  may  consist  (1),  in  a  loss  of 
actual  funds  in  hand;  (2),  in  keeping  funds  idle,  which 
represents  a  loss  not  of  capital,  but  of  possible  return 
thereon;  or  finally,  (3),  in  the  use  of  funds  so  as  to 
earn  only  a  low  return  instead  of  a  possible  higher  rate. 

The  cashier  who  in  his  daily  handling  of  the  check 
book  neglects  to  discount  bills  while  a  surplus  stands 
to  his  credit  in  the  bank,  is  allowing  profits  to  leak  away 
through  idle  money;  or  if  he  might  negotiate  a  bank 
loan  ahead  of  a  stringency  for  the  purpose  of  discount- 


MONEY  LEAKS  AND  SAYINGS 

ing  these  bills  when  cash  secures  him  unusual  prices,  he 
is  neglecting  the  use  of  idle  credit  on  which  a  profit 
might  be  earned. 

Much  less  excusable  is  a  loss  of  actual  capital,  dis- 
bursed without  receiving  an  equivalent.  In  checking 
over  his  books  the  cashier  of  a  Chicago  wholesale  house 
noticed  that  the  charges  for  postage  were  running 
unusually  heavy.  An  investigation  brought  out  the  fact 
that  in  one  department  the  private  use  of  stamps  of  the 
concern  was  responsible  for  a  definite  and  by  no  means 
trifling  loss  of  capital.  Further  study;  of  the  books  and 
bills  payable  or  paid  showed  that  a  public  accountant 
had  overstated  the  time  spent  on  the  installation  of  a 
new  voucher  system  and  that  there  was  also  an  over- 
charge for  warehouse  storage,  covering  several  crates 
which  did  not  belong  to  the  concern  billed. 

Attention  to  the  financial  mechanism  of  his  own 
department  thus  enabled  the  cashier  to  save  his  firm 
leakage  of  the  actual  working  capital.  It  is  upon  such 
considerations  in  the  daily  handling  of  interest  items, 
discount  items,  overcharges,  time  of  payment,  employ- 
ment of  surplus  and  the  opening  of  new  channels  of 
constantly  higher  return  on  the  working  balance,  that 
expert  financial  heads  of  stores,  offices  and  factories  are 
saving  their  salaries  five  and  tenfold  every  year. 

Stopping  Losses  and  Gearing  up  Profits  upon  Your 
Fixed  Investment 

The  junior  partner  of  a  New  England  factory,  hav- 
ing recently  come  into  active  control,  was  discussing 
with  his  board  of  directors  a  bond  issue  for  the  purpose 
of  doubling  his  factory  floor  space,  when  his  auditor 
brought  out  the  fact  that  the  old  management  had 
allowed  the  accumulation  of  certain  stock  to  the  amount 


118  KEEPING  CAPITAL  AT  WORK 

of  nearly  $200,000.  This  figure  meant  that  nearly  a 
quarter  of  a  million  dollars  was  constantly  tied  up  in 
goods  which,  during  the  busy  season,  could  not  be  con- 
sumed under  ninety  days.  A  special  sales  plan  was 
developed,  which  cleared  out  nine-tenths  of  this  slow- 
selling  stock  and  at  once  furnished  the  working  capital 
for  the  enlargement  of  the  plant. 

The  investment  of  this  amount  constantly  in  stocks 
which  were  unnecessary  to  meet  any  probable  demand, 
represented  at  five  per  cent  a  loss  of  $800  a  month 
through  idle  capital  and  without  considering  the  depre- 
ciation of  the  stock.  Wherever  money  has  been  put  into 
long-time  investments,  the  profits  it  earns  are  a  chal- 
lenge to  this  test  on  the  part  of  wideawake  executives 
who  realize  the  tremendous  losses  possible  from  dead  in- 
ventory items,  overbuying  and  of  idle  finances. 

Capital  may  be  invested  for  business  locations,  for 
fixtures,  for  equipment,  for  raw  material,  for  stocks 
of  goods,  for  credit  afforded  to  customers,  for  advertis- 
ing and  selling,  for  overhead  expenses  or  for  securities 
intended  to  give  the  concern  reserve  strength  in  case  of 
unusual  need.  Every  one  of  these  items  may  be,  and  in 
well-conducted  financial  divisions  is  being  put  to  the 
threefold  test  already  mentioned.  First,  are  these  funds 
themselves  safe  from  actual  loss;  second,  is  this  invest- 
ment productive  or  idle ;  third,  acknowledging  that  this 
capital  is  returning  a  profit,  would  it  be  possible  to 
secure  a  higher  return  without  sacrificing  any  impor- 
tant quality  of  the  investment  ? 

How  to  Make  Comparisons  Show  up  Leaks  in  the 
Financing  of  a  Business 

Controlling  funds  and  investments — finding  and 
stopping  leaks — making  money  excel  past  records  of 


MONEY  LEAKS  AND  SAVINGS  119 

productiveness — means  to  classify,  to  tabulate  and  to 
compare  the  fiscal  items  for  the  day,  month  or  year.  A 
new  business  is  often  handicapped  by  ignorance  and 
lack  of  data  or  records  as  to  the  proper  amounts  to  be 
put  into  fixed  investments  or  reserved  as  working  cap- 
ital; as  to  proper  percentages  on  and  savings  in  the 
handling  of  funds;  as  to  the  use  of  different  kinds  of 
collateral  at  the  bank  and  the  importance  of  bulk  buy- 
ing, as  compared  with  discount  purchases  for  cash.  The 
clever  business  man  supplies  this  lack  through  the 
accumlated  knowledge  of  his  banker  and  of  credit  men 
in  firms  from  which  he  buys;  through  the  assistance  of 
expert  auditors  and  the  averages  of  good  business  men 
in  competing  shops  or  allied  lines.  This  technical 
insight  into  financial  routine  he  applies  to  the  study  of 
alternative  estimates  in  his  own  financial  operations, 
with  the  inevitable  result  that  in  the  handling  of  money, 
as  in  the  use  of  electricity  or  coal,  savings  and  increased 
efficiency  are  developed. 


Stop  the  Leaks 

WASTE  saps  the  life  of  a  business. 
Detecting  waste  is  not  a  matter 
of  judgment  but  of  system — of  com- 
parisons.    Waste  grows  with  the  num- 
ber of  untagged  items  in  the  accounts. 


CHAPTER  XVII 

Checking  Up  and  Making 
Financial  Forecasts 

DETAIL  was  the  stumbling  block  in  the  growth  of 
the  business  of  a  large  real  estate  dealer  in  a 
southern  city.  He  was  kept  working  late  at  night  to  get 
through  the  mass  of  detail  that  kept  piling  up  with 
increasing  confusion  on  his  desk.  Besides,  he  never 
knew  exactly  how  he  stood  financially.  It  took  hours 
to  get  the  simplest  facts  concerning  vital  money  mat- 
ters in  his  business. 

One  night  when  he  had  just  finished  clearing  his 
desk,  he  looked  at  the  clock — it  was  almost  midnight. 

1  '  Something  must  be  wrong, "  he  said  to  himself, 
"when  I  spend  most  of  my  time  merely  checking  up 
business,  instead  of  getting  out  and  leading  the  sales 
force.  My  business  has  been  my  master — I  must  learn 
to  master  it." 

That  night  marked  the  beginning  of  a  new  policy  in 
handling  the  business;  in  calculating  the  records  of 
expense,  receipts,  profits,  obligations  outstanding  and 
amounts  due;  the  condition  of  each  department,  the 
present  balances  and  the  cash  that  would  be  on  hand  at 
any  time.  An  expert  was  employed  who  not  only 
relieved  the  executive  of  his  unproductive  work,  but 

120 


BALANCES  AND  FORECASTS 


121 


boiled  down  the  details  of  all  accounts  and  reports  into 
one  sheet  of  exact  results  which  gave  in  convenient  form 
an  absolute  check  upon  his  business — that  showed  just 
where  the  business  stood  and  whether  it  could  cover 
the  ledger  liabilities.  It  enabled  the  owner  to  look  ahead, 
to  plan  his  financial  moves  so  that  capital  was  never 


Monthly  Balance 
of  Departmental 
Expenses,  and 
Earnings  to  be 
.Checked  against 
Quota 

President's  Sales 

£ 

[Acreage  and  North 
Suburban  Loans 

!l 

~* 

West  Suburbs 

Injtenirban  Addition 

1 

1 

Rents  and  Leases 

Odd  Sales 

Office  Sales 

(- 

Rent 

15.90 

15.90 

15.90 

15.90 

15.90 

15.90 

15.90 

15.90 

7.90 

32tOO 

7.90 

r  (LTS.QS 

175.00 

Extraordinary 
Expense 

^Fi 

.Postage  and 

'Carfare 

5.38 

5.38 

£.38 

.   3.00 

3.00 

3.00 

3.00 

12.00 

1.80 

14.91 

3.00 

(50.03 

Incidentals 

28.55 

28.55 

31.55 

28.55 

28.55 

28.55 

28.55 

78.10 

14.30 

28.55 

14.31 

S£u 

'Telephone 

4.23 

4.23 

4.23 

4.23 

4.23 

4.23 

4.23 

4.23 

4.23 

6.58 

2.40 

CgTwJ 

'  47.05 

Light 

.98 

(ToT^ 

Fuel,  Water. 
Ice,  etc. 

2.46 

2.46 

2.46 

2.46 

2.46 

2.46 

2.46 

2.46 

2.46 

3.83 

1.40 

QL0.5J) 

27.37 

Printing 

11.50 

22.25 

(5Q753 

33.75 

Uvery 

60.96 

76.20 

91.44 

76.20 

76.20 

76.20 

48.77 

48.77 

24.38 

31.27 

30  .AC 

640  .V? 

Advertising 

33.41 

33.41 

70.73 

45.49 

45.49 

75.83 

12.73 

117  .39 

10.73 

36  .52 

10.73 

49^46- 

Signs 

1.90 

1.90 

1.90 

1.90 

1.90 

1.90 

1.90 

1.90 

1.90 

23.75 

1.90 

Salaries 
Direct 

300.00 

200.00 

180.00 

150.00 

150.00 

125.00 

73.35 

208.32 

50.00 

210.00 

£570.83 
1646.67 

Administrative 
Salaries 

64.98 

64.98 

64.98 

64.98 

C4.98 

64.98 

64.98 

64.98 

36.10 

129.96 

36.10 

<£b0.02 
722.00 

Chauffeurs' 

Salaries 

170.?0 

Totals- 

545.48 

460.72 

496.28 

420.42 

420.42 

425.76 

283.58 

593.26 

169.81 

556.84 

123.46 

(5996.6? 

4496.03 

Earnings 

as  .00 

820.60 

1999.82 

1241.56 

750.00 

3225.00 

230.00 

754.00 

32.15 

649.54 

151.50 

9879.17 

Differences 

£20.4! 

359.88 

1503.54 

821.14 

329.58 

2799.24 

dUi) 

160.74 

<L37.66l 

92.70 

28.04 

5383.14 

FORM  II:  This  monthly  statement  shows  how  the  president  of  a  real  estate  com- 
pany organized  his  office  into  the  eleven  producing  departments  listed  across  the  top  of 
the  chart.  The  upper  figure  in  the  last  column  after  each  item  is  the  quota  laid 
down  at  the  beginning  of  the  month  and  was  written  in  red  ink — (here  indicated  by  a 
circle  about  the  sum).  The  lower  figure  represents  the  actual  expenditure.  Where 
the  expense  of  a  department  exceeds  earnings,  the  figure  appears  in  the  lower  line  in  red. 
By  comparison  of  his  department  column  with  the  quota  memo  received  at  the  first  of 
the  month,  each  department  manager  knows  exactly  how  his  work  has  measured  up 
to  requirements,  and  the  president  is  able  to  check  on  every  department 

idle,  so  that  his  credit  reputation  was  never  impaired  by 
failure  to  meet  obligations  when  due,  and  so  that  he 


122  KEEPING  CAPITAL  AT  WORK 

could  profit  by  every  opportunity  to  expand  his  busi- 
ness and  increase  his  profits. 

Form  II  shows  the  proportional  expense  and  the 
sales  of  each  department.  This  sheet  is  inserted  in  a 
twelve  by  twelve  loose  leaf  book,  so  that  the  executive 
can  compare  his  latest  returns  each  month  with  the 
preceding  months  and  years.  The  upper  figures  in  the 
last  column  are  the  estimates  made  at  the  beginning  of 
the  month  on  the  individual  items  of  expense.  The 
expenses  are  divided  between  the  different  departments 
on  a  basis  of  proportion  plus  judgment,  and  each 
department  has  its  quota.  This  quota  enables  the  head 
of  the  department  to  know  exactly  what  figure  in  com- 
missions will  clear  his  department  of  loss  for  the 
month.  Thus  the  business  is  divided  into  " power  units'* 
or  production  units  so  that  the  executive  knows  at  a 
glance  what  departments  of  his  business  are  lagging 
behind  and  those  that  are  adding  most  to  his  bank 
balance. 

The  real  estate  dealer  is  no  longer  struggling  under 
a  mass  of  detailed  information.  He  has  an  accurate 
bird's-eye  view  of  the  tendencies  of  his  business.  By 
comparing  records  he  can  tell  what  he  should  do  in  the 
future;  what  will  be  the  effect  on  his  whole  business 
from  factors  which  influence  only  certain  departments. 
He  knows  how  much  capital  he  needs  to  keep  on 
reserve ;  how  much  he  may  safely  invest.  He  can  give 
his  banker  an  accurate  basis  to  work  on,  so  that  he 
has  a  full  line  of  credit  without  endangering  his  busi- 
ness; and  he  knows,  moreover,  where  to  concentrate  his 
efforts  if  he  is  obliged  to  make  a  quick  increase  in  the 
production  of  his  business. 

Planning  ahead  for  successful  financing  of  a  business 
cannot  be  done  by  guesswork.  The  value  of  a  forecast 


BALANCES  AND  FORECASTS  123 

depends  entirely  upon  knowledge  of  present  and  past 
business.  The  real  estate  dealer's  plan  gives  this  knowl- 
edge. 

How  a  Financial    Report    by     Percentages    Makes 
Money  Problems  Plain 

A  large  manufacturing  plant  keeps  an  elaborate 
series  of  charts  to  control  items  of  expense.  Forms  III, 
IV  and  V  give  a  complete  record  of  the  classified  and 
comparative  expense  month  by  month.  The  totals  are 
incorporated  into  the  general  percentage  books. 

The  first  comparative  percentage  book  gives  the  per- 
centage of  expenses  to  sales  (Form  VI).  If  the  execu- 
tive, for  example,  desires  to  know  the  ratio  of  office 
expense  to  sales,  he  turns  to  the  index,  finds  the  table 
and  running  his  finger  along  the  designated  lines,  he 
sees  at  a  glance  the  percentages  for  each  month  in  the 
year.  Now,  turning  to  the  yearly  table,  he  compares 
the  years  as  he  did  the  months.  Going  down  a  line  he 
follows  the  ratio  the  salaries  bear  to  sales,  and  so  on, 
through  all  the  subdivisions  pertaining  to  the  expense 
of  selling.  The  averages  reveal  immediately  any  incon- 
gruity or  abrupt  variation.  When  the  percentage  of 
office  expense  to  sales  is  once  approximately  deter- 
mined, he  has  the  key  to  the  subsequent  controlling  of 
this  item. 

The  second  comparative  percentage  book  (Form 
VII)  shows  the  ratio  that  each  item  of  expense  bears  to 
the  total  of  expense.  An  increase  in  one  item  is  thus 
made  conspicuous. 

The  third  comparative  percentage  book  gives  the 
ratio  of  expense  to  gross  profits  (Form  VIII).  This 
book  gives  the  officials  a  survey  of  the  bearing  of  the 
expense  account  upon  the  business  as  a  whole. 


* 


124  KEEPING  CAPITAL  AT  WORK 

By  means  of  these  forms  the  executive  has  a  complete 
daily,  monthly  and  yearly  record  of  his  business. 
Expense  reports  reach  his  desk  daily  in  two  books: 
" General  Expense,  Classified/'  and  "Sundry  Expense, 
Classified."  The  daily  items  are  condensed  in  the 
monthly  percentage  books  and  those  again  in  the  yearly 
percentage  books. 

A  single  instance  shows  the  value  of  these  records. 
One  of  the  electric  meters  showed  at  one  time  a  sudden 
jump  from  twenty-three  to  forty  dollars.  This  was 
detected  as  soon  as  the  monthly  comparison  was  made. 
The  sudden  increase  was  clearly  due  to  .some  fault  in 
the  meter  or  to  some  inexcusable  waste.  The  difficulty 
was  soon  located  and  in  the  succeeding  month  the  meter 
had  dropped  to  normal. 

How  Records  and  Graphs  Can  be  Used  to  Aid  in 
Financing  a  Business 

A  successful  manufacturing  house  has  organized  a 
system  of  accounts  so  accurate  that  the  manager  is  able 
closely  to  estimate  the  revenue  and  disbursements 
months  ahead.  At  the  beginning  of  each  month  the 
auditor  submits  a  statement  showing  just  what  revenue 
may  be  expected  from  various  sources  during  the  ensu- 
ing thirty  days.  The  figures  are  based  upon  averages 
covering  the  same  month  during  several  years.  The 
total  receipts  under  the  various  heads  are  listed  daily 
with  the  aid  of  a  cash  register,  and,  if  at  the  end  of  the 
first  week  in  the  month  the  manager  sees  that  they  are 
falling  below  the  estimate,  he, starts  a  special  campaign 
for  increased  business.  For  quick  comparison  of  big 
tendencies  in  the  business,  he  also  has  a  constant 
graphic  record  prepared.  This  graphic  or  picture 
method  is  gaming  ground  rapidly  whenever  clever 


BALANCES  AND  FORECASTS 


125 


financiers  or  executives  are  in  control. 

In  plotting  a  graph,  each  square  represents  a  certain 
unit  of  time,  money  or  quantity.     By  counting  the  spaces 


General  Expense 


Classified 


Date 


Expenditure  ' 


|  :    •..,•...•?;.•*,•<>,; 


Mar:  Apr.  May 


Oct-  Nov.  Dec;    Total 


.Comparative  Expense 


Units  of  Outlay 


Electric  Light  and  Power  x 


Motet 
No.  1 


Light 


Meter 
-No.  2 


Meter  Arc 

No.  5          Light! 


Elevators 


Total. 


:al;§ 


^^ 


General  Statistics 


Percentages 


Percentage  of  Single  Expense  Item  to  Total  Expense 


Items 


1908 


1909 


1910 


1911 


1912 


1913 


|!(|e&!i!^ 

SiilM^f'  ;oiifc8::;i!:;;;' 


A 


FORMS  III — VIII:  Six  forms  comparing  expense  in  different  ways  that  enable  the 
executive  to  forecast  and  control  the  financial  situation.  The  upper  form  is  used  for  a 
daily  report  of  expenses,  item  by  item.  The  monthly  total  on  each  item  appears  in  the 
same  order  on  the  next  form.  The  third  form  shows  an  analysis  of  a  single  item  of  ex- 
pense— electric  lighting  and  power — developing  specific  leaks  in  different  departments. 
The  lower  three  forms  are  used  for  an  annual  total  of  each  expense  item,  indicated  as 
a  percentage  respectively  of  the  sales  total,  the  expense  total  and  the  gross  profit 

horizontally  and  then  vertically  a  point  is  found  whicK 
corresponds  with  the  conditions  to  be  graphically  rep- 
resented, and  the  line  is  made  by  connecting  the  differ- 


126  KEEPING  CAPITAL  AT  WORK 

ent  points.  These  graphs  not  only  save  the  time  of  the 
executive,  but  they  also  give  warnings,  of  new  conditions 
and  provide  danger  signals.  The  line  of  the  graph 
shows  the  actual  tendency  of  the  business,  and  does  this 
much  better  than  a  column  of  tabulated  figures  possibly 
could.  Furthermore,  these  graphic  records  give  an 
opportunity  for  comparison  of  results  with  correspond- 
ing periods  of  former  years.  The  graph  literally  pic- 
tures these  comparisons.  A  rise  or  a  fall  of  the  line 
shows  immediately  the  tendency  of  the  business  and  the 
management  is  able  to  provide  in  time  fop  the  condi- 
tions that  the  graph  foreshadows. 

Keeping   an    Accurate   Check   upon    Your  Business 
and  Making  Money  Forecasts 

In  determining  the  exact  condition  of  a  business  the 
following  suggestions  are  important: 

In  the  first  place,  separate  accounts  should  be  kept 
of  each  department.  By  means  of  these  accounts  any 
department  which  does  not  pay  is  easily  detected  and 
may  be  done  away  with;  also  the  effect  of  certain  fac- 
tors upon  the  condition  of  the  business  may  be  accu- 
rately determined.  A  record  similar  to  that  of  the  real 
estate  dealer  will  show  not  only  the  condition  of  the 
whole  business,  but  the  actual  state  of  each  component 
part. 

For  the  store,  office  or  factory  in  which  the  employ- 
ment of  an  expert  accountant  is  too  expensive,  it  is 
generally  possible  to  secure  an  expert  for  two  or  three 
evenings  in  each  month.  Some  methods  must  be  found 
to  get  full  and  accurate  statements,  balance  sheets  and 
money  forecasts  at  frequent  intervals.  Manufacturing 
plants  and  industries  of  complex  and  technical  character 
should  get  expert  reports  at  certain  definite  periods, 


BALANCES  AND  FORECASTS 


127 


especially  concerning  deterioration  and  other  conditions 
that  are  difficult  to  determine. 

Graphs  are  easily  kept  and  they  are  of  great  value 
even  in  the  small  business.  They  make  comparison 
extremely  simple  and  the  factors  which  effect  business 
may  be  isolated  and  thus  determined.  These  records 
give  warning  of  contingencies  in  time  to  provide  for 
them. 


Jan.  1911    Feb.  1911    Mar.  1911  Apr. 

Week  Ending  -«  3  S  $  «  3  2  «>»  3  2  S  «  <*  2 

S900I1IJI  ||    ..  |    r  i  :i,  i;ii  nin'irmr 
800  •  t  i  ------  —  TT  :  :  i  :  ±  :  :  • 

profits    4COiSiLtgj±±tga3::t.  :+±;g;i  ; 

Per  Week   3^  p£^SSSH:|:|:±:    ::::i::|::  : 

1911  May  1911   Jim.  1911   Jui7l911 

flp||l;|;||lil|| 

%  -Of  Money  12'  iSEH5|;;|  i!|S   ,    "^::t:::::|: 

;;;;;!  ;  jiiilj  !!|!!!ji!!|lil!!; 

•i-s  ^  ^i;iii:hi;;  iiiiiliii^ii^ 

lpll:||||||ip::::!H 

||H  |pj||||||;j||;||  , 

t  flnTtTfmifi-^H^4fiiti^f  miffffifrri 

MLJiiiMMmmyiHi  ,  itn 

Tliis  graph  shows  how  a  manufacturer  has  plotted  his  total  profits  by  weeks  and   made 
a  striking  picture  of  the  decrease  in  his  profits  during  May  and  June  from  over  six 

, 

three  per  cent.     Such  charts  covering  all  receipts  and  disbursements  for  years  are  easily 
made  and  are  the  basis  of  estimates  for  ensuing  seasons  in  many  offices 

Success  in  financing  a  business  depends  largely  upon 
ability  to  provide  for  future  money  opportunities  and 
emergencies.  Guesswork  is  only  self-deception.  Rec- 
ords are  the  prerequisite  of  foresight,  but  this  is  not 
their  only  value.  They  enable  you  to  secure  the  confi- 
dence of  the  banker  and  your  creditors  through  your 
ability,  knowledge  and  progressive  spirit.  They  enable 


128  KEEPING  CAPITAL  AT  WORK 

you  to  plan  ahead  for  emergencies  and  secure  funds 
when  hopes  presented  instead  of  facts, are  futile. 

They  warn  against  money  waste  and  offer  the  basis 
of  measures  that  meet  the  crisis.  With  efficient  finan- 
cial records,  the  executive  needs  only  study  and  inge- 
nuity to  dominate  his  business  and  push  it  to  solid 
success. 


What  Gains  Success 

BUSINESS  success  results  from  the 
*~*  combination  of  efficiency  in  man- 
agement with  wise  use  of  capital  and 
credit.  Foresight,  planning  ahead  to 
meet  money  demands,  conscious  atten- 
tion to  the  details  of  credit  standing, 
records  and  financial  advice  that  show 
up  the  danger  signals,  courage  and  re- 
sourcefulness in  emergencies,  the  max- 
imum use  of  capital  and  credit  within 
the  bounds  of  safety — these  are  condi- 
tions that  fix  the  bank  balance,  that 
determine  the  growth  of  a  business* 
that  mtv'ie  its  course  sure. 


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